Effectuation

 Alfiansyah Clark - TP075566

Figure 1: Effectuation Image (Hillabush, 2019)

Can effectuation also be used in companies? Or is it useful only for entrepreneurship?

To start off, what is effectuation? Effectuation is way of thinking and decision-making used by entrepreneurs. It focuses on creating opportunities and solving problems by using the resources that are available to you, as opposed to making predictions and planning for the future. The mindset is “The future is unpredictable” so instead of trying to plan for the future, you instead focus on what is available to you at the current moment. (Mortensen, 2021)

Effectuation is a versatile mindset that can also be applied to companies. Scenarios where there is high levels of uncertainty or the  future is unknowable is common, or there are simply too many variables to account for the predictive rationality approach does not work.(Dargham, 2021) In corporations effectual thinking can be effective in the development of new products, services and business models, taking initiative and exploring possibilities where there is limited to no data. Another way this can be useful is when there are resource constraints, effectuation encourages a mindset of adaptability, whereby allowing for employees to focus on what they can control and how to utilize existing resources, encouraging being agile and responsive to emerging opportunities.(Mortensen, 2021) Finally, another situation where companies can utilize the effectual mindset is when a company creates a radical innovation in a market, such as Game Sent with their Ai-powered device that lets players smell their games.(Lyles, 2024) With this brand new technology, there is now way to rely on predictions about potential demand as no market exists yet for that type of product hence making it extremely difficult to gage the reaction of consumers.  

References:

Dargham, A. (7 January, 2021). Effectuation principles: a theory for entrepreneurs. Retrieved 18 April,             2024, from Daacap: https://www.daacap.com/effectuation-principles-a-theory-for-entrepreneurs/ 

Hillabush, N. (5 February, 2019). Q&A: Darden Professor Cracks the Code of How Great Entrepreneurs Think .Retrieved 18 April, 2024, from University Of Virgina: https://news.virginia.edu/content/qa-darden-professor-cracks-code-how-great-entrepreneurs-think 

Lyles, T. (28 February, 2024). GameScent Is a New AI Device That Lets You Smell Game Worlds While Playing. Retrieved 18 April, 2024, from IGN: https://sea.ign.com/gamescent/212702/news/gamescent-is-a-new-ai-device-that-lets-you-smell-game-worlds-while-playing

Mortensen, D. H. (14 August, 2021). The Basic Principles of Effectuation – How to Use What You Already Have to Become More Innovative. Retrieved 18 April, 2024, from Interaction Design: https://www.interaction-design.org/literature/article/the-basic-principles-of-effectuation-how-to-use-what-you-already-have-to-become-more-innovative

Badr Abduldaim - TP074644

Figure 2: Effectuation Principles (Blekman, 2022)

What is the key difference between effectuation and other approaches in entrepreneurship?

Effectuation focuses on how entrepreneurs make decisions and take action in uncertain environments. Some key principles in effectuation are:

1. Bird in hand: entrepreneurs usually start knowing what they have and what they want to achieve by asking themselves “what do I have to present or sell” rather than just trying to achieve goals with uncertain position.
2. Affordable loss: some good companies start off the business considering they will absolutely fail and loss in the market and start thinking about how to rise again in case of failure and if the risk they take will cost them more than the initialized emergency budget.
3. Crazy quilt: successful businesses always have strong connections and alliance.
4. Lemonade principle: The “Lemonade Principle” is based on the old adage that goes: “If life throws you lemons, make lemonade”.In other words, make the best of the unexpected. (Duening, Shepherd, & Czaplewski, 2012)

5. Pilot in the plane: it’s basically simple as the principal title is, taking control of the core means responsibility.

Key differences between the effectuation and other approaches are, dealing with uncertainty, effectuation tends to deal with uncertainty more effectively. Other approaches have the advantage when dealing with a stable strong business avoiding risks. Effectuation emphasizes traits like flexibility, resilience, and creativity.

References:

Blekman, T. (2022). GS4E Knowledge clip: Effectuation principles. Retrieved 19 April, 2024, from Youtube: https://www.youtube.com/watch?v=9-cMlvcI5sA

Duening, T., Shepherd, M., & Czaplewski, A. (21 December, 2012). How Entrepreneurs Think: Why Effectuation and Effectual Logic May be the Key to Successful Enterprise Entrepreneurship. International Journal of Innovation Science, 4(4), 205-216. Retrieved 19 April, 2024, from https://doi.org/10.1260/1757-2223.4.4.205

 

Abdulhadi Muhammad - TP077039

Are the effectual approach and the traditional approach mutually exclusive?

To answer this question we need to define what the traditional and effectual approaches are. The traditional approach is also known as the causal approach, where a person sets a goal and acquires the resources need to achieve said goal. The effectual approach differs as it focuses on using the already existing resources to achieve goals. 

An example would be of a chef who is asked to cook a meal. Using a causal approach, the chef will be given a dish to cook, and he will then purchase the ingredients and cook the dish. Using an effectual approach, rather than being given a dish to cook, the chef looks at the already existing ingredients present and improvises and creates a meal with them (Sarasvathy, 2001).

 To answer the question as to whether these approaches are mutually exclusive or not, they are not. Both approaches can be used depending on the situation on hand. For example, in industries which are slow growing, the causal approach is a lot better to create growth and value within the business, where as within faster growing industries, the effectual approach creates better growth and value within the business. In industries with medium levels of growth, both approaches are essentially the same in terms of business growth and value growth (Futterer, Schimdt, & Heidenreich, 2018).

 

 

References:

Sarasvathy, S. (2001). 2001 Sarasvathy Causation and effectuation.                    http://entrepreneurscommunicate.pbworks.com/f/2001_Sarasvathy_Causation+adn+effectuation.pdf

Futterer, F., Schmidt, J., & Heidenreich, S. (2018). Effectuation or causation as the key to corporate    venture success? Investigating effects of entrepreneurial behaviors on business model innovation and venture performance. Long Range Planning, 51(1), 64–81. https://doi.org/10.1016/j.lrp.2017.06.008

Abdirahman Warsame - TP077730

Does effectuation mean: “not planning”?

To answer this question, we first have to understand what effectuation and planning means.

“Effectuation is a way of thinking and decision-making that is based on the idea that entrepreneurs create their future by taking action and making things happen”. It is focused on creating opportunities and solving problems by using the resources that are available to you, rather than making predictions and trying to plan for the future. (Sarasvathy, 2001)

Planning is the fundamental management function, which involves deciding beforehand, what is to be done, when is it to be done, how it is to be done and who is going to do it. It is an intellectual process which lays down an organization’s objectives and develops various courses of action, by which the organization can achieve those objectives. It chalks out exactly, how to attain a specific goal. (Daniel, 2021)

To summarize, effectuation encourages taking action and leveraging available resources to create opportunities rather than relying heavily on detailed plans. It encourages adaptability and flexibility, accepting uncertainty as a natural part of the entrepreneurial process.

References

Daniel, M. (10 October, 2021). Planning. Retrieved from Business Jargon: https://businessjargons.com/planning.html

Sarasvathy, S. (2001). Effectuation – decision making in uncertain circumstances. Retrieved from t2informatik: https://t2informatik.de/en/smartpedia/effectuation/

 

Ahmed Jinan Ali- TP075798

Are Effectuation and Lean Startup compatible?

Yes, Effectuation and Lean Startup are indeed compatible. Both methodologies share two key assumptions: Uncertainty is not faced with more planning but rather with action and learning from the market (Sarasvathy, 2001).

Lean Startup (LS) has gained considerable traction in the startup scene, especially within digital firms where the concept finds its genesis (Habib, Ries, & Muhlhauser, 2011). However, there are more and more calls in the entrepreneurship literature to study LS’s application beyond the digital context. This study provides empirical evidence that non-digital entrepreneurs pursue an effectual logic in their LS approach (Chandler et al., 2011).

The results position the LS as a practical-oriented and up-to-date implementation of strategies based on the Learning School of strategy making and the effectuation approach to entrepreneurship (Mintzberg, 1979; Sarasvathy, 2001).

In conclusion, while both methodologies have their unique strengths, they are not mutually exclusive. Instead, they can be seen as complementary, each providing valuable insights and tools for entrepreneurs navigating the uncertain waters of startup creation (McGrath & MacMillan, 2000).

References

Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic                         inevitability to entrepreneurial contingency. Academy of management Review, 26(2), 243-263.

Habib, S. M., Ries, S., & Muhlhauser, M. (2011, November). Towards a trust management system for             cloud computing. In 2011IEEE 10th International Conference on Trust, Security and Privacy in               Computing and Communications (pp. 933-939). IEEE.

Chandler, Gaylen N., et al. "Causation and effectuation processes: A validation study." Journal of                     business venturing 26.3 (2011): 375-390.

Mintzberg, Henry. "Patterns in strategy formation." International Studies of Management &                              Organization 9.3 (1979): 67-86.

McGrath, Rita Gunther, and Ian C. MacMillan. The entrepreneurial mindset: Strategies for continuously         creating opportunity in an age of uncertainty. Vol. 284. Harvard Business Press, 2000.