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Lecture 1 - BP vs effectuationEvidence-based approach: systematic analysis that relies on proven data to guide
decisions.
IPO = Initial Public Offering – the first sale of stock by a private company to the public,
making it a publicly traded market
Meta-analysis method = statistical method used in research to combine and analyze the
results from multiple individual studies to address a set of related research hypotheses.
Meta-analysis is done when there is no clear conclusion. Why:
- Increased statistical power: by pooling data from multiple studies, a meta-analysis
can increase the effective sample size, enhancing the statistical power of the
analysis.
- Evidence-based decision making: Meta-analysis helps in synthesizing the
evidence across different studies, leading to more robust conclusions.
- Generalizability: when studies are conducted in different settings with different
populations, a meta-analysis can help in understanding the extent to which the
findings can be generalized to other settings or groups.
Brinckmann et al. (2010) – Should entrepreneurs plan or just storm the caste? A
meta-analysis on contextual factors impacting the business planning-performance
relationship in small firms.
There are two views (often due to the effect of contextual factors):
1. Planning school = systematic, prediction-oriented and formal planning leads to superior
venture performance because resources are used more effectively, the decision speed is
increased and flexible actuation is supported.
2. Learning school = focus on learning, strategic flexibility, incremental approach
What influences the BP-performance relation (moderators):
Firm age, uncertainty avoidance, BP outcome vs process
results:
H1: Business planning in small firms increases performance
H2: Firm age: BP increases performance more in established small firms than it does in new
small firms (less uncertainty = need for flexibility)
H3: Uncertainty avoidance: Business planning has a greater effect of firm performance in
cultures with low uncertainty avoidance than it does in cultures with high uncertainty
avoidance
(Where uncertainty is high, leaders might stick more closely to their plans.)
H4: BP outcome vs process: The outcome of business planning (business plan) has a
greater effect on firm performance than the business planning process (market research etc)
> This is not significant proven, stays fuzzy, h3 rejected.
Storm the caste: It implies a more aggressive and less risky approach to establish their
business. Market is a battlefield.
,Red ocean: represents all the industries in existence today.
Competition in red oceans is often described as a zero-sum game (a party’s gain is exactly
balanced by another party’s loss), with fierce competition turning the ocean bloody red.
Research interest:
- Education importance
- Facilitation of entrepreneurship and regional development:
- Investment consideration
- BP helps in decision making
- BP prevents dedicating time to activities such as acquiring resources or organizational
development.
- BP can lead to cognitive rigidities (mental barriers that prevent individuals from
adaptation), organizational inertia (tendency of a company to continue its current trajectory
due to resistance to change), and limited strategic flexibility (businesses may not be
capable of adjusting its strategies in response to changes in the environment).
Sarasvathy (2001) – Causation & Effectuation: Toward a theoretical shift from
economic inevitability to entrepreneurial contingency.
Causation: causator takes a particular effect as given and focuses on selecting
between means to create that effect. (Chef: cooks from pantry)
Managerial thinking, predict the future
economic inevitability: assumes outcomes are predictable if you plan and analyze well
Effectuation: effectuator takes a set of means as a given and focuses on selecting between
possible effects that can be created with that set of means. (Chef: uses a recipe).
Entrepreneurial thinking, not afraid of failure, exploration
Key Principles of Effectuation:
1. Bird-in-Hand Principle: Start with what you have (your means) rather than focusing on a
specific goal.
(use your own skills to build a business)
2. Affordable Loss Principle: Focus on what you can afford to lose, rather than aiming for
maximum returns.
(invest only the amount of money that you are willing to lose)
3. Crazy Quilt Principle: focus on building partnerships rather than beating competitors.
(coopetition, co-creation)
4. Lemonade Principle: Leverage surprises and uncertainty as opportunities rather than
risks. Dealing effectively with changing circumstances.
(covid > sell more online)
5. Pilot-in-the-Plane Principle: Focus on controllable aspects of the future, assuming that
the entrepreneur can shape outcomes rather than predict them.
(don’t try to predict the demand for the product but work on the business)
The propositions compare the role of effectuation and causation in entrepreneurship across
three levels:
, 1. Economy: Firms created through effectuation are likely to fail earlier but at lower costs
than those formed through causation.
2. Market: Early entrants in a new industry are more likely to have succeeded using
effectuation processes. Later entrants, however, may find causation more beneficial.
3. Firm: In the early stages of a firm's development, forming alliances and partnerships is
more crucial for success than relying on- competitive strategies like sophisticated market
practices in recruitment or training of employees.
The propositions about effectuation within firms and founders compare their approach to
traditional decision-making:
1. Marketing Decisions: Effectuators prefer practical, real-time marketing activities and
alliances over traditional market research methods like surveys or test-marketing.
2. Financial Decisions: Effectuators prioritize short-term decision-making and informal,
flexible financial analysis, rather than long-term planning or net present value (NPV)
analysis.
3. Organizational Decisions: Effectuators tend to foster participatory cultures over
hierarchical and procedure-driven structures, making them less suited to running large,
established organizations.
4. Failures and Long-Term Success: While effectuators may experience more failures,
they are better at managing them, and over time, are more likely to build larger, more
successful firms.
Lecture 2 - internationalization
Organizations need to be sustainable, profitable but also resilient. You also need certain
skills.
Moderator = a categorical (example: gender) or metric (example: R&D intensity) variable
that affects the direction and/or strength of the relation between an independent (predictor)
variable and a dependent (outcome) variable)
Lu, (2004). International diversification and firm performance: The S-curve
hypothesis. Academy of Management Journal, 47(4), 598-609.
This paper proposes a theoretical framework for understanding the relationship between
multinationality (the extent to which a firm operates in multiple countries) and firm
performance.
Phases of the S-curve:
- Initial decline: at the beginning, as a firm starts to internationalize, its performance
might get worse. (cultural differences, operational inefficiencies, increased
complexity)
- Subsequent increase: after the firm overcomes the initial challenges, increasing
geographic diversification starts to improve firm performance. (economies of scale,
market opportunities, risk reduction)
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