WEEK 1
Lecture 1: Business Planning versus Effectuation
Brinckmann et al., 2010
Should entrepreneurs plan or just storm the castle? A meta-analysis on
contextual factors impacting the business planning–performance
relationship in small firms.
A study that investigates the importance of business planning for small
firms. It highlights how various contextual factors, such as the age of the
firm and its cultural environment, can affect the link between planning and
business performance. The findings suggest that while planning is
advantageous, its effectiveness is moderated by these external factors.
Additionally, the study advocates for a combined approach that merges
planning with learning for better outcomes.
An intense debate emerged recently in entrepreneurship research on the
value of business planning for established small and especially new firms.
It concerns the crucial quandary entrepreneurs face whether to plan
before embarking on the perilous quest for venture success or if they
should just storm the castle.
Meta analysis = study of studies
positive, negative, and neutral relationships are found
comparison of relationships
Contextual factors = cultural differences
Business planning = how to apply a company’s resources to reach its
goal (e.g., in a profitable way, to grow their business, make it more
sustainable)
investigate the resources (internally) and the market (externally)
building a plan to speed up how to allocate resources effectively, and
create cohesion in company about this plan
Benefits of business planning:
- Funding
- Communication
- Speed up decision-making
- Allocating resources
Counterarguments of business planning
Especially in small firms, therefore, storm the castle
- Limited resources
- Time pressure
- Not familiar with the market (waste of time)
Big risk for business planning in High Uncertainty Risk countries like
Germany because they will stick with the plan whatever happens.
,The article discusses under what circumstances it is a good idea to
perform business planning, and under what circumstances it is not.
There is a difference between small and mature firms, business planning is
more important for mature firms than for startups. Therefore, the
importance depends on the maturity of the company.
The article suggests an overall positive relationship between business
planning and performance. However, the environment is changing rapidly,
therefore it is hardly possible to execute the plan. For example, the time
perspective has shortened in planning, for instance, there is monthly
planning now instead of yearly planning.
Research interest
BP competitions are a key instrument to facilitate entrepreneurship
and regional development across the globe
Professional investors require nascent entrepreneurs to write a BP
before they will consider an investment.
Research gap
- Two opposing theoretical perspectives:
o BP fosters firms’ development due to increased decision speed
and more efficient resource utilization. Goal setting fosters the
identification of effective steps to realize these goals.
o BP prevents dedicating time to activities such as acquiring
resources or organizational development (Bhide, 2000). BP can
lead to cognitive rigidities, organizational inertia, and limited
strategic flexibility (Vesper, 1993).
- Largely inconsistent empirical research on the planning–performance
relationship in entrepreneurship:
o Studies finding negative, null, or positive relations
(e.g.,Brackeretal.,1988;Langeet al., 2007; Gartner & Liao,
2005).
- Extant empirical research base is heterogeneous:
o Studies draw from both new and established small firm
samples neglecting contextual differences between these
different types of firms.
Without systematic integration of individual empirical findings, the
external validity / generalizability of findings remains questionable.
Relying on few individual studies reporting a positive influence
without considering studies with opposing evidence gives way to the
risk of type one errors (i.e., false positives: assuming a positive
influence of BP on performance when in fact there is none).
evidence-based approach
Research aim
, 1) The paper analyzes the general (i.e., main / direct) relationship
between business planning and performance.
2) The paper analyzes specific planning-contexts where a planning-
based approach creates better performance. To this end, the paper
draws on three moderating factors:
a. Maturity (small or mature)
The development stage of the firm,
b. Learning versus communication
The form of business planning undertaken
c. Uncertainty avoidance (high or low)
The cultural context in which the planning–performance
relationship occurs (a country’s level of uncertainty avoidance,
UA)
Contribution
The analysis ...
- Shapes our understanding of the information requirements for
effective planning and the limits of planning in light of complexity
and uncertainty
- Addresses the question whether a liability of newness can be
overcome through BP
- Contributes insights concerning effective resource utilization
- Provides insights into how the legitimization and communication-
based benefit of a written BP compares to a learning benefit the
entrepreneurs obtain in the business-planning process
- Contribute insights with regard to the functions business planning
fulfills for individuals in different cultural contexts and how different
environments respond to the business planning efforts
Theory / research model
Moderation model
Performance is
the dependent variable, you need to ‘explain’ the dependent variable
Meta-analysis: purpose and advantages
Assessment of overall direction(s) and effect size(s) by aggregating
prior empirical evidence.
, Aggregated effect sizes incorporate weighted (by sample size)
magnitude and direction of each primary study.
Synthesized effect size estimate has higher statistical power than
the integrated primary studies.
Accounts for moderating variables causing variance of effect sizes
across primary studies.
Reduces subjectivity bias and enhances statistical accuracy.
Meta-analytic results provide more than a summation of the
integrated findings by generating additional insights and
directions for future research.
Results
H1 Effect will be stronger for mature firms
Countries with low UA (India) should put effort in business planning
Countries with high UA (Germany) should not put effort in business
planning
Correlation found in studies between business planning and performance,
that is an observation for the meta-analysis.
Implications for theory
- Overall, BP is a value creating activity (despite the required
resources and small firms’ resource constraints).
- However, BP is not equally beneficial under all circumstances.
- Findings challenge conventional entrepreneurship wisdom that BP is
particular important for new firms:
o High uncertainty and missing information reduce the positive
effect of BP on performance in new firms (Forbes, 2007).
- Higher UA reduces the benefits of BP:
o Adhering to BP limits strategic flexibility and openness to
changes. Unpredicted events as opportunities/exploitable
contingencies (Sarasvathy, 2001).
- Benefits stem from both the symbolic and the learning effects of BP.
The article criticizes the idea of startups to focus on business planning.
Implications for practitioners
Basic BP activities sufficient in the firm’s initial years
Allocate resources to other activities enabling information
gathering, uncertainty reduction, and learning.
Long pre-planning activities detached from market interaction
and feedback appear detrimental.
Mental preparation and willingness to adjust BPs is critical. Close
execution of BP not beneficial per se.
Limitations
Possible overlaps between new and established small firms (studies
usually do not report the size distribution of the sampled firms).
