Uncertainty in Entrepreneurial Decision Making: The Competitive Advantages of Strategic Creativity

220 Pages·2015·1.21 MB·English

by  Panagiotis E. Petrakis

PalgraveStudiesinDemocracy,Innovation,and
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BooksAppearinginThisSeries:
UnpackingOpenInnovation:HighlightsfromaCo-EvolutionaryInquiry
ManlioDelGiudice,EliasG.Carayannis,andMariaRosariaDellaPeruta
TheEntrepreneurialRiseinSoutheastAsia:TheQuadrupleHelixInfluenceonTech-
nologicalInnovation
StavrosSindakisandChristianWalter
Uncertainty in Entrepreneurial Decision Making: The Competitive Advantages of
StrategicCreativity
PanagiotisE.PetrakisandDimitraP.Konstantakopoulou
Uncertainty in Entrepreneurial
Decision Making
The Competitive Advantages of
Strategic Creativity
Panagiotis E. Petrakis and Dimitra
P. Konstantakopoulou
UNCERTAINTYINENTREPRENEURIALDECISIONMAKING
Copyright©PanagiotisE.Petrakis&Dimitra
P.Konstantakopoulou,2015.
Softcoverreprintofthehardcover1stedition2015978-1-137-46078-3
Allrightsreserved.
Firstpublishedin2015by
PALGRAVEMACMILLAN®
intheUnitedStates—adivisionofSt.Martin’sPressLLC,
175FifthAvenue,NewYork,NY10010.
WherethisbookisdistributedintheUK,Europeandtherestofthe
World,thisisbyPalgraveMacmillan,adivisionofMacmillanPublishers
Limited,registeredinEngland,companynumber785998,of
Houndmills,Basingstoke,HampshireRG216XS.
PalgraveMacmillanistheglobalacademicimprintoftheabove
companiesandhascompaniesandrepresentativesthroughouttheworld.
Palgrave®andMacmillan®areregisteredtrademarksintheUnited
States,theUnitedKingdom,Europeandothercountries.
ISBN978-1-349-68989-7 ISBN978-1-137-46079-0(eBook)
DOI10.1057/9781137460790
LibraryofCongressCataloging-in-PublicationData
Petrakis,PanagiotisE.,1953–
Uncertaintyinentrepreneurialdecisionmaking:thecompetitive
advantagesofstrategiccreativity/PanagiotisE.Petrakis&
DimitraP.Konstantakopoulou.
pages cm.—(Palgravestudiesindemocracy,innovation,and
entrepreneurshipforgrowth)
Includesbibliographicalreferencesandindex.
1. Entrepreneurship. 2. Uncertainty. 3. Decisionmaking.
4. Strategicplanning. I. Konstantakopoulou,DimitraP.,
1975– II. Title.
HB615.P39472015
658.4(cid:2)03—dc23 2015001640
AcataloguerecordofthebookisavailablefromtheBritishLibrary.
DesignbyIntegraSoftwareServices
Firstedition:July2015
10 9 8 7 6 5 4 3 2 1
Contents
ListofTablesandFigures vii
Introduction ix
Part I TheStateoftheFuture
1 TheUnknownFuture 3
2 TheInevitableTrends:ReturnsandUncertainty 17
3 HowWilltheFutureBeShaped? 33
Part II FutureEntrepreneurshipandCompetitive
Advantage
4 EntrepreneurshipOpportunitiesandFuture
CompetitiveAdvantage 45
5 EntrepreneurshipunderUncertainty 59
6 EntrepreneurialBehaviorandForesight 75
7 EntrepreneurialDecisionsunderUncertainty 95
8 StrategyforFutureCompetitiveAdvantage 111
Part III CreativeStrategicScenarioThinking
(CSST)
9 FuturingandVisioningasStrategicInstrumentsfor
PredictingtheFuture 129
10 StrategicScenarioThinking 141
11 ScenariosunderHighUncertaintyandLowReturns 155
vi Contents
12 CreativeStrategicScenarioThinkingunderHigh
UncertaintyandLowNominalReturns 167
Notes 185
Bibliography 187
Index 213
Tables and Figures
Tables
7.1 Connectionsamongtheoriesandtheroleoftime 98
7.2 Decisionmakingunderconditionsofuncertainty,
accordingtorationalprospecttheory 107
Figures
1.1 Futureanalysis 4
1.2 Threetypesofchanges 15
2.1 IncreaseinuncertaintyintheUnitedStates
(USUncertaintyIndex) 30
12.1 Decisionmakingusingtraditionalevaluation
methodsunderlowuncertainty 182
12.2 Decisionmakingthroughcreativestrategic
scenariothinkingunderhighuncertaintyandlow
nominalreturn 183
Introduction
The dominant issue in the analysis of entrepreneurship is the
study of the conditions of its development. The development
of entrepreneurship is associated with the future, in turn asso-
ciated with uncertainty, which is not necessarily quantified as
measurablerisk.
Thisbook,UncertaintyinEntrepreneurialDecisionMaking:The
CompetitiveAdvantageofStrategicCreativity,investigatesthecon-
ditions for evaluating future business decision making under high
uncertainty.
Of course, future development is an extension of the past and
present. Some of the factors that determine future change are
already visible and depend on the time horizon of the analysis.
However, the future develops in an unknown manner and follows
differentpathsdependingonthesocial,economic,andtechnolog-
ical changes that occur. Future surprises, and specifically their size
andnature,determinethedegreeofuncertaintythataffectsfuture
entrepreneurship.
Researchersfocusmuchoftheirattentiononlong-termgrowth
and development prospects and are especially concerned with
assessing optimistic or pessimistic views on average investment
returns.Developedcountriesarecurrentlycharacterizedby(a)the
useofheavymonetarypolicymethodstomaintaingrowthratesand
employment levels of the productive workforce since the 1970s,
and especially to avert the great financial crisis of 2008, (b) the
possibility of secular stagnation, (c) the prevailing of global pro-
ductivestructuralrearrangements,alongwithstructuralchanges,in
theageofpopulationsandtechnologicaldevelopments,andfinally,
(d) an already high level of development achieved by the devel-
opedeconomies.Thus,itisfoundthattheworldisenteringalong
period of low average nominal returns on entrepreneurial invest-
ments. Additionally, serious incidents of uncertainty periodically
occurandendangerthedevelopmentofentrepreneurship.
Thus, a situation of low nominal return and high uncertainty is
formed. Under those circumstances, even low uncertainty causes
significantfluctuationinrealratesofreturns.
x Introduction
Entrepreneurial attempts will always exist (even with low
entrepreneurialreturns),becausetheincentivesfortheiractivation
arecomplex.
Givenprevailinglowratesofreturn,traditionalinvestmentanal-
ysis (net present value—NPV) suggests that all investments that
offer a positive return should be accepted. But the existence of
uncertainty, even intense uncertainty, suggests the opposite since
uncertainty decreases the reliability of traditional evaluation meth-
ods (e.g., net present value or others that rely largely on rational
choice).
Certainly, the existence of low nominal return and high fre-
quency uncertainty (LNR/HFU) conditions (such as forecast for
the next three years in Europe), although expected to provide a
common reference point for the entire economy, does not nec-
essarily exert a universal effect. Innovative enterprises normally
have high performance. Moreover, there will always be innovative
entrepreneurial conditions that create oligopolistic or monopolis-
tic market conditions and thus allow higher returns. For exam-
ple, specific regions or entrepreneurs in developing economies
may remain highly profitable destinations for venture capital.
Consequently, new approaches are required for evaluating alter-
native future entrepreneurship opportunities, because traditional
approaches cannot meet the requirements of the LNR/HFU
environment.Therefore,differentevaluationtoolsareneeded.
This book proposes creative scenario thinking as a tool for the
developmentoffuturecompetitiveadvantage.
We wish to thank the following people who contributed to the
completionof this book. In particular,a special thank-you goes to
Mr. P. C. Kostis for his cooperation on Chapters 1, 3, and 9; to
Mrs. K. I. Kafka for her cooperation on Chapters 2, 4, and 8; to
Mr. H. V. Basdekis for his cooperation to Chapters 5, 6, and 7;
andtoMr.D.G.ValsamisforhiscooperationonChapters10,11,
and12(allresearchersintheUniversityofAthens).Ofcourse,final
responsibilityforthepresentationofthisbooklieswiththeauthors.
Our scientific work could not have been completed without
the help of our colleagues at the University of Athens, particularly
Mrs.E.Gkiouli,whocontributedsignificantlytothedevelopment
ofthisscientificproject.
P.E.Petrakis
D.P.Konstantakopoulou