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Business DevelopmentLecture 1
Article 1: Causation and effectuation toward a theoretical shift from
economic inevitability to entrepreneurial contingency – Saras D.
Sarasvathy, University of Washington
There are three justifications that researchers have used to ignore phenomena
involving ambiguous, changing and constructed goals and values.
1. Goal development and choice are independent processes, conceptually
and behaviorally
2. The model of choice is never satisfied in fact and deviations from the
model accommodate the problems of introducing change
3. The idea of changing goals is so intractable (hardnekkig) in a normative
theory of choice that nothing can be said about it
4 levels of phenomena: macro, industry/market, firm and individual.
In this article, a special theory is developed to explain the creation of new firms.
Effectuation vs causation
Causation: causation processes take a particular effect as given and focus on
selecting between means to create that effect.
Effectuation: effectuation processes take a set of means as given and focus on
selecting between possible effects that can be created with that set of means.
A simple example should help clarify and distinguish between the two types of
processes. Imagine a chef assigned the task of cooking dinner. There are two
ways the task can be organized. In the first, the host or client picks out a menu in
advance. All the chef needs to do is list the ingredients needed, shop for them,
and then actually cook the meal. This is a process of causation. It begins with a
given menu and focuses on selecting between effective ways to prepare the
meal.
In the second case, the host asks the chef to look through the cupboards in the
kitchen for possible ingredients and utensils and then cook a meal. Here, the chef
has to imagine possible menus based on the given ingredients and utensils,
select the menu, and then prepare the meal. This is a process of effectuation. It
begins with given ingredients and utensils and focuses on preparing one of many
possible desirable meals with them.
The distinguishing characteristic between causation and effectuation is in the set
of choices: choosing between means to create a particular effect vs. choosing
between many possible effects using a particular set of means. Causation models
consists of many-to-one mappings, and effectuation models involve one-to-many
mappings.
Then there are 2 examples given, one about starting an Indian restaurant and
one about U-Haul, a company within the do-it-yourself industry. It’s about all the
decisions they’ve had to make.
,The anatomy of a decision process of causation involves:
A given goal to be achieved or a decision to be made
A set of alternative means or causes
Constraints on possible means
Criteria for selecting between the means
A decision involving effectuation however, consists of:
A given set of means
A set of effects or possible operationalizations of generalized aspirations
Constraints on possible effects
Criteria for selecting between the effects
4 principles that form the core of a theory of effectuation:
1. Affordable loss rather than expected returns
2. Strategic alliances rather than competitive analyses
3. Exploitation of contingencies rather than exploitation of preexisting
knowledge
4. Controlling an unpredictable future rather than predicting an uncertain one
Then the work of 3 researchers has been discussed (James G. March, Henry
Mintzberg and Karl E. Weick)
To summarize, effectuation processes are posited as the fundamental decision
units in explanations of how economic artifacts such as firms, markets, and
economies come to be. Effectuation begins with a given set of causes, consisting
of (mostly) unalterable characteristics and circumstances of the decision maker,
and the focus is on choosing among alternative (desirable) effects that can be
produced with the given set of means, thereby eliminating the assumption of
, preexistent goals. Unlike in causation models, which are usually static and in
which decision makers are assumed independent, in effectuation a dynamic
decision environment involving multiple interacting decision makers is assumed.
As explicated earlier, the four principles of effectuation, in contrast with
causation, involve:
1. Affordable loss, rather than expected returns
2. Strategic alliances, rather than competitive analyses
3. Exploitation of contingencies rather than preexisting knowledge
4. Control of an unpredictable future rather than prediction of an uncertain
one.
At the level of the economy:
Proposition 1: Prefirms or very early- stage firms created through processes of
effectuation, if they fail, will fail early and/or at lower levels of invest- ment than
those created through pro- cesses of causation.
At the level of the market/industry
Proposition 2: Successful early en- trants in a new industry are more likely to
have used effectuation pro- cesses than causation processes. With later entrants,
the trend could be reversed.
At the level of the firm
Proposition 3: Successful firms, in their early stages, are more likely to have
focused on forming alliances and partnerships than on other types of competitive
strategies, such as sophis- ticated market research and competi- tive analyses,
long-term planning and forecasting, and formal management practices in
recruitment and training of employees.
At the level of the founders/decision makers there are a few conjectures made
(vermoedens).
Article 2: Understanding dynamics of strategic decision making in
venture creation: a process study of effectuation and causation
Isabelle M.M.J. Reymen
This article focuses on the entrepreneurial decision-making process to
understand the role of strategic decision making in the venture creation process
under conditions of uncertainty.
Planning-based approaches appear to have limited success in contexts
characterized by true uncertainty. In contrast, more flexible, experimental and
adaptive approaches appear to fit better with uncertain decision-making
contexts.
As decision-making logics are context dependent and the context (in particular
the level and type of uncertainty) changes over time, entrepreneurs are likely to
shift from one logic to another or to combine different logics.
This study addresses the following questions:
1. How does the use of effectual and causal decision making evolve during
the venture creation process?
2. What may drive shifts in the use of effectual and causal decision making?
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