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Effectuation

Effectuation is an entrepreneurial decision-making logic that can be applied in situations of high uncertainty. It does not work with predictions but focuses on taking action based on individual means and co-creation with others. Effectuation is mostly used for developing ventures and business models. The term effectuation comes from the difference between cause and effect and describes creating effects without setting concrete goals.[1]

Development of Effectuation

Effectuation is a result of global entrepreneurship research. It was pioneered by entrepreneurship professor Saras D. Sarasvathy, today at the University of Virginia Darden School of Business in the course of her dissertation. Her doctoral advisor was the cognitive scientist and Nobel Prize laureate Herbert A. Simon, who for example conducted research on the decision behaviors of experts, such as chess masters. Sarasvathy worked with him on the decisions of expert entrepreneurs, who are successful serial entrepreneurs.[2]

Contrary to her expectation of finding evidence for a special planning ability, Sarasvathy found that the expert entrepreneurs were critical of prediction-based approaches.[1] More specifically, she identified five decision-making principles[3] and a process[4] that make up effectuation. Since then, effectuation has been validated empirically several times but also criticized.[5]

Effectuation Principles

Non-predictive control: Non-predictive control is the meta principle of effectuation. Predictive approaches with linear, causal logic assume that one can control the future to the extent of being able to predict it. Effectuation suggests that everything that is within one's immediate control does not need to be predicted. Expert entrepreneurs use a logic of non-predictive control by which they create new things with means and resources at their disposal. The future can hence be created through commitments from autonomous actors. For example, investors commit to supporting a future product or a new business, reducing uncertainty.[6]

Means-driven action: Individual means (who I am, what I know, and whom I know) determine what options for action are possible and what results may be achieved. Instead of asking "What should one do?", expert entrepreneurs start with "What can I do?". To illustrate, someone may open a fridge and create a meal with the ingredients in it.[7] Means orientation is at the start of the effectuation process. Hence, effectuation begins with becoming aware of one's means.[8]

Affordable loss: The individual affordable loss (and not the expected return) determine what steps are taken. For example, an entrepreneur may decide to spend two years’ worth of time and a part of her savings on her venture, irrespective of what she currently earns.[7] The affordable loss and the individual means result in courses of action possible, which are the second step in the effectuation process.[8]

Partnerships: Expert entrepreneurs start partnerships with self-selected stakeholders who agree to commit means to a venture under conditions of uncertainty. Hence, expert entrepreneurs do not engage in strategic planning when identifying new possibilities but interact with customers and other partners to formulate goals over time. With every new partnership, new potentials emerge and the available means and resources expand.[7] For example, a cook who wants to become an entrepreneur meets a novelist and they jointly decide to develop a cookbook. In the effectuation process, interactions with others and resulting stakeholder commitments follow from the possible courses of action. These stakeholder commitments then lead to new means and new goals.[8]

Leveraging contingencies: Unexpected events and contingencies can be leveraged into entrepreneurial opportunities. For example, BioNTech conducted research on mRNA vaccines for cancer therapy but was able to use the contingency of the Covid-19 pandemic to develop a Covid vaccine.[9] In the effectuation process, contingencies may have an impact on the individual means and the courses of action possible.[1]

Literature

  • René Mauer, Simon Nieschke, Saras D. Sarasvathy: Gestation in new technology ventures: Causal brakes and effectual pedals. In: Journal of Small Business Management, 2021, S. 1–36.
  • S. Read, S. Sarasvathy, M. Song, N. Dew, R. Wiltbank: Marketing Under Uncertainty: An Effectual Approach. In: Journal of Marketing. Vol. 73, Nr. 3, Mai 2009, S. 1 ff.
  • Sebastian Szambelan, Yi Jiang, René Mauer: Breaking through innovation barriers: Linking effectuation orientation to innovation performance. In: European Management Journal, 38(3), 2020, S. 425–434.
  • S. Sarasvathy: Effectuation: Elements of Entrepreneurial Expertise. 2. Auflage, Edward Elgar, Cheltenham 2022, ISBN 978-1-8391-0257-8.
  • Robert Wiltbank, Nicholas Dew, Stuart Read, Saras D. Sarasvathy: What to do next? The case for non-predictive strategy. In: Strategic Management Journal. Vol. 27, Nr. 10, 2006, S. 16 ff.
  • Stuart Read, Saras D. Sarasvathy: Knowing What to Do and Doing What You Know: Effectuation as a Form of Entrepreneurial Expertise. In: The Journal of Private Equity. Vol. 9, Nr. 1, 2005, S. 45 ff. (18 Seiten)
  • Saras D. Sarasvathy: Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. In: The Academy of Management Review. Vol. 26, Nr. 2, 2001, S. 243 ff. (21 Seiten)
  1. ^ a b c Saras D. Sarasvathy (2009), Effectuation: elements of entrepreneurial expertise (1 ed.), Cheltenham, ISBN 978-1848445727{{citation}}: CS1 maint: location missing publisher (link)
  2. ^ Saras D. Sarasvathy: Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. 2001.
  3. ^ Dew, Nicholas; Read, Stuart; Sarasvathy, Saras D.; Wiltbank, Robert (2009). "Effectual versus predictive logics in entrepreneurial decision-making: Differences between experts and novices". Journal of Business Venturing. 24 (4): 287–309. doi:10.1016/j.jbusvent.2008.02.002.
  4. ^ Sarasvathy, Saras D.; Dew, Nicholas (2005). "New market creation through transformation". Journal of Evolutionary Economics. 15 (5): 533–565. doi:10.1007/s00191-005-0264-x. ISSN 0936-9937.
  5. ^ Grégoire, Denis A.; Cherchem, Naïma (2020). "A structured literature review and suggestions for future effectuation research". Small Business Economics. 54 (3): 621–639. doi:10.1007/s11187-019-00158-5. ISSN 0921-898X.
  6. ^ Saras D. Sarasvathy (2008), Effectuation: elements of entrepreneurial expertise, Cheltenham, Glos, UK: Edward Elgar, ISBN 978-1-84376-680-3
  7. ^ a b c Nicholas Dew, Stuart Read, Saras D. Sarasvathy, Robert Wiltbank (2009), "Effectual versus predictive logics in entrepreneurial decision-making: Differences between experts and novices", Journal of Business Venturing, vol. 24, no. 4, pp. 287–309, doi:10.1016/j.jbusvent.2008.02.002, ISSN 0883-9026{{citation}}: CS1 maint: multiple names: authors list (link)
  8. ^ a b c Saras D. Sarasvathy, Nicholas Dew (2005), "New market creation through transformation", Journal of Evolutionary Economics, vol. 15, no. 5, pp. 533–565, doi:10.1007/s00191-005-0264-x, ISSN 0936-9937
  9. ^ Michael Faschingbauer (2021), Effectuation, Schäffer-Poeschel, ISBN 978-3-7910-4940-3
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