Effectuation
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Effectuation is a theory of entrepreneurial action which emphasizes the importance of control-based versus prediction-driven decision making in the creation of a new venture. The theory was developed in the late 1990s by Professor Saras D. Sarasvathy based on her study of expert entrepreneurs which was conducted under the supervision of Nobel Laureate Herbert Simon. The theory suggests that since entrepreneurs face extreme uncertainty they should start creating companies based on their available means versus pre-determined goals and embrace collaboration.
Sarasvathy identified five principles of Effectuation, each of which emphasizes control over prediction. Effectuation has been the subject of over 250 peer-review journal articles.University of Albany journal article search.[1]
Background[edit]
The theory of Effectuation was initially formulated by Saras D. Sarasvathy while at Carnegie Mellon University and studying under Herbert A. Simon, a Nobel Laureate and a cognitive scientist known for his work on expert decision behaviors.[2] Her research, particularly with Simon, revolved around the decision-making patterns of expert entrepreneurs, notably those with a history of serial entrepreneurial successes.[3]
Contrary to Sarasvathy's initial hypothesis of a unique planning capability among these entrepreneurs, her findings revealed a general skepticism towards predictive strategies in expert entrepreneurs' decision-making processes.[4] Sarasvathy delineated five core principles of decision-making which collectively form the logic of effectuation.[3] Since its inception, effectuation has evolved into a significant and influential stream within entrepreneurship research attracting both supporters and detractors.[5] The topic has garnered extensive academic attention, evidenced by the publication of over 250 peer-reviewed journal articles on the subject of Effectuation.[1] Sarasvathy was awarded the Global Award for Entrepreneurship Research in 2022 for her work on effectuation.[3]
Concept & Principles[edit]
Effectuation has been summarized as including five principles that expert entrepreneurs employ to overcome uncertainty.[6]
Means-driven action (Bird-in-hand): Individual means (who you are, what you know, and whom you know)[7] 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?".[8]
Affordable loss thinking: The affordable loss principle suggests that entrepreneurs take action based not on expected return but rather on risking only the resources they can afford to lose.[8]
Embracing Partnerships (Crazy quilt): Expert entrepreneurs start partnerships with self-selected stakeholders who agree to commit means to a venture under conditions of uncertainty. The principle asserts that with every new partnership, new potentials emerge and the available means and resources expand.[9]
Leveraging contingencies (Lemonade): The lemonade principle refers to the idea of leveraging contingency by embracing and adapting to unexpected events or challenges. Rather than viewing surprises as setbacks, entrepreneurs using Effectual logic see them as opportunities to create new possibilities and markets, much like turning lemons into lemonade.[10]
Practicing Non-predictive control (Pilot-in-the-plane): Expert entrepreneurs use a logic of non-predictive control by which they create new things with means and resources at their disposal. The principle suggests the future can be created through commitments from autonomous actors.[11]
Measurement[edit]
Survey instruments for measuring Effectuation Theory have been created by researchers including Wiltbank,[12] Chandler[13] and Mauer.[14] The reseach and validation work by Gaylen Chandler resulted in an instrument to measure Effectual behavior. The article entitled "Causation and Effectuation Processes: A Validation Study," focuses on developing and validating measures for causation and effectuation approaches in new venture creation.[13]
Critical and Popular Response[edit]
Effectuation was the cover story in Inc. in February 2011 in an article entitled, "How Great Entrepreneurs Think".[15]
Richard J. Arend, Hessamoddin Sarooghi, and Andrew Burkemper published an article critical of the effectuation theory in entrepreneurship in 2015.[16] The authors argued that the theory lacked sufficient empirical testing and critical analysis. In their assessment, they drew on a comprehensive set of theory-building criteria to evaluate effectuation.[16]
Venture Capitalist Vinod Khosla reviewed a copy of, "What Makes Entrepreneurs Entrepreneurial?" an explanation of Effectuation by Saras Sarasvathy and described it as, "The First Good Paper I've Seen".[17][18]
On April 29th, 2024 Sarasvathy and her Effectuation Research were the subject of the social science podcast Hidden Brain in an episode entitled "Innovation 2.0 - How Big Ideas are Born".[19]
The Government and NGO Policy Application[edit]
The United States Government and Several NGO's have studied or evaluated the use of Effectuation in entrepreneurship education including USAID, The Danish Entrepreneurship Foundation and Youth Business International.[20][21][22][23]
External Links[edit]
References[edit]
- ↑ 1.0 1.1 University at Albany Libraries. (n.d.). Search results for "Effectuation" [Subject term] in peer-reviewed articles. Retrieved April 21, 2024, from https://search.library.albany.edu/discovery/search?query=sub,contains,Effectuation,AND&pfilter=rtype,exact,articles,AND&tab=allthethings&search_scope=allthethings&vid=01SUNY_ALB:01SUNY_ALB&mode=advanced&offset=0
- ↑ Read, Stuart; Dew, Nicholas; Sarasvathy, Saras D.; Song, Michael; Wiltbank, Robert (May 2009). "Marketing under Uncertainty: The Logic of an Effectual Approach". Journal of Marketing. 73 (3): 1–18. doi:10.1509/jmkg.73.3.001. ISSN 0022-2429. Unknown parameter
|s2cid=ignored (help) - ↑ 3.0 3.1 3.2 Foss, Nicolai J.; Andersson, Martin; Henrekson, Magnus; Jack, Sarah; Stenkula, Mikael; Thorburn, Karin; Zander, Ivo (2023-06-01). "Saras Sarasvathy: recipient of the 2022 Global Award for Entrepreneurship Research". Small Business Economics. 61 (1): 1–10. doi:10.1007/s11187-023-00746-6. ISSN 1573-0913. Unknown parameter
|s2cid=ignored (help) - ↑ Sarasvathy, Saras D. (2008-02-29), "Effectuation: Elements of Entrepreneurial Expertise", Effectuation, Edward Elgar Publishing, doi:10.4337/9781848440197, ISBN 978-1-84844-019-7, retrieved 2023-12-12 Unknown parameter
|s2cid=ignored (help) - ↑ Grégoire, Denis A.; Cherchem, Naïma (March 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. Unknown parameter
|s2cid=ignored (help) - ↑ Bridge, Simon (March 2021). "Facing uncertainty: An entrepreneurial view of the future?". Journal of Management & Organization. 27 (2): 312–323. doi:10.1017/jmo.2018.65. ISSN 1833-3672.
- ↑ Bylund, Per (2020-06-12). "Forget the Moat and Make Your Startup a Tropical Island". Entrepreneur. Retrieved 2023-05-22.
- ↑ 8.0 8.1 Duening, Thomas; Shepherd, Morgan; Czaplewski, Andrew (2012-12-01). "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. doi:10.1260/1757-2223.4.4.205. ISSN 1757-2223.
- ↑ Read, Stuart; Song, Michael; Smit, Willem (November 2009). "A meta-analytic review of effectuation and venture performance". Journal of Business Venturing. 24 (6): 573–587. doi:10.1016/j.jbusvent.2008.02.005. ISSN 0883-9026.
- ↑ "Are Entrepreneurs Born or Made? The Principles of Effectuation : I95 Business". i95business.com. Retrieved 2024-04-22.
- ↑ Prashantham, Shameen; Kumar, Kothandaraman; Bhagavatula, Suresh; Sarasvathy, Saras D (February 2019). "Effectuation, network-building and internationalisation speed". International Small Business Journal: Researching Entrepreneurship. 37 (1): 3–21. doi:10.1177/0266242618796145. ISSN 0266-2426.
- ↑ Wiltbank, Robert; Read, Stuart; Dew, Nicholas; Sarasvathy, Saras D. (2009-03-01). "Prediction and control under uncertainty: Outcomes in angel investing". Journal of Business Venturing. 24 (2): 116–133. doi:10.1016/j.jbusvent.2007.11.004. hdl:10945/41247. ISSN 0883-9026.
- ↑ 13.0 13.1 Chandler, Gaylen N.; DeTienne, Dawn R.; McKelvie, Alexander; Mumford, Troy V. (May 2011). "Causation and effectuation processes: A validation study". Journal of Business Venturing. 26 (3): 375–390. doi:10.1016/j.jbusvent.2009.10.006. ISSN 0883-9026.
- ↑ Brettel, Malte; Mauer, René; Engelen, Andreas; Küpper, Daniel (2012-03-01). "Corporate effectuation: Entrepreneurial action and its impact on R&D project performance". Journal of Business Venturing. 27 (2): 167–184. doi:10.1016/j.jbusvent.2011.01.001. ISSN 0883-9026.
- ↑ Buchanan, Leigh (February 1, 2011). "How Great Entrepreneurs Think". Inc. Magazine. pp. 54–61. Retrieved April 21, 2024 from https://www.inc.com/magazine/20110201/how-great-entrepreneurs-think.html
- ↑ 16.0 16.1 Arend, Richard J.; Sarooghi, Hessamoddin; Burkemper, Andrew (2015). "Effectuation as Ineffectual? Applying the 3e Theory-Assessment Framework to a Proposed New Theory of Entrepreneurship". The Academy of Management Review. 40 (4): 630–651. doi:10.5465/amr.2014.0455. ISSN 0363-7425. JSTOR 43699312.
- ↑ "What Makes Entrepreneurs Entrepreneurial? | Khosla". www.khoslaventures.com. Retrieved 2024-04-22.
- ↑ "Learn Effectuation Page". effectuation.org. Retrieved 2024-04-22.
- ↑ "Innovation 2.0: How Big Ideas Are Born | Hidden Brain Media". 2024-04-30. Retrieved 2024-05-09.
- ↑ Anne Bitga, David Feige, C. P. (2020). USAID: Study on the Use of Effectuation Theory in Youth Entrepreneurship Education and Training programs (Vol. 1, Issue March).[1]
- ↑ USAID. (February 2022). FINAL REPORT OF THE MID-TERM EVALUATION OF USAID/GUATEMALA’S PUENTES PROJECT. Retrieved from https://pdf.usaid.gov/pdf_docs/PA00Z9GF.pdf
- ↑ The Danish Foundation for Entrepreneurship (May 2015). A TAXONOMY OF ENTREPRENEURSHIP EDUCATION - Perspective on goals, teaching and evaluation. Retrieved from https://eng.ffe-ye.dk/media/785766/taxonomy-en.pdf
- ↑ Youth Business International (2018). Effectuation and its application in youth entrepreneurship training. Retrieved from https://youthbusiness.org/wp-content/uploads/2023/11/YBI-EffectuationReport-English-Digital-1.pdf
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