Effectuation in Entrepreneurship

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Can effectuation used in companies?

Effectuation 
Effectuation is good for participating in companies. Since, it is a procedure and logic for the company develops in the early startup phase. Some professionals walk step by step according to the procedure in order to achieve early customers and partner which will brings benefits, goals and viewpoints. On account of the fact that, effectuation is a way of decision making in varieties of situation with high level of precariousness. As firm might face some situation where there is no any information to have a guaranteed upcoming decisions. (Carlos, 2022)

Is effectuation useful for entrepreneurship? 

Entrepreneurship
Moreover, effectuation is also useful for entrepreneurship. As they use effectuation to explain the process so that they will generate new ventures. When exploring how to generate the value for a business. They will have 2 choices which is predictive thinking and effectuation. Predictive thinking is "If i can predict the future, i can control it.". However, effectuation thinking is slightly difference with predictive thinking which is "If i can control the future, i don't need to predict it". (Alan, 2021)


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Does effectuation means : 'not planning'

Control vs Prediction

Effectuation is a way of thinking and decision-making based on entrepreneurs perspective create their future by taking action and making things happen. Causal is a take a particular situation that had been given and take action on it. In addition, effectuation do assits and overcome the negative impact that will faced by them in business. As a conclusion, effectuation still require planning to achieve its goal and more adaptive as well as utilise your current assets compare to traditional planning which is focus on method to reduce or minimizing risks and increasing productivity. (Pfeffer & Khan, 2018)

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Are the effectual approach and the causal approach mutually exclusive?

Although the two models, effectual and causal, have their differences in a lot of ways, they are not mutually exclusive to use. We use both effectual and causal approach as a combined approach for different situations, decisions, and actions which can happen simultaneously or intertwined (Sarasvathy, 2001, p. 245). 

Both of these models provide their own strengths and weaknesses. 

This means that the best way to utilize both of these approaches is to combine certain aspects with one another. 

A careful analysis of case studies and research has proven that both the effectual and causal approach can be used at the same time or maybe one after another to allow for a better decision to be made (Koguta et al., 203). 

One of the biggest decision that benefits from the usage of both models is at a macro level, where the context is much more complicated with many moving parts and variables to account for (Khurana et al., 2021). 

Of course it is to be noted that just because both models can be used at the same time, does not mean that it will always bring the best result for every situation. 

The approach to take depends on which approach is more efficient in the given circumstances (Morales, 2020).

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

Means-Oriented: Effectuation starts with the resources at hand (your identity, knowledge, and network) and allows goals to evolve over time based on the available means. 

Non-Predictive: Rather than attempting to forecast the future, effectual entrepreneurs concentrate on managing the factors within their control and adapting to evolving circumstances 

Flexible: The approach is characterized by greater flexibility and adaptability, with a focus on experimentation and deriving lessons from setbacks. This allows the entrepreneur to face uncertainty, viewing unpredictable situations as new opportunities (Morales, 2020).

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Co-Creation opportunities

Effectuation stands out from traditional entrepreneurial approaches by emphasizing starting with available means and focusing on affordable loss rather than expected returns. Instead of following a linear path with predefined goals and extensive planning, effectuation is adaptive and flexible, allowing goals to evolve through ongoing interactions with stakeholders. 

This approach encourages co-creating opportunities with partners, customers, and other stakeholders, viewing opportunities as dynamic and emergent rather than static and discoverable through market research. While traditional methods often rely on predicting and controlling the future based on thorough analysis and planning, effectuation embraces the uncertainty of the future, leveraging current actions to shape it. (Mansoori & Lackéus, 2017)

This makes effectuation particularly effective in environments characterised by high uncertainty and rapid change, where traditional predictive methods may fall short. In essence, effectuation empowers entrepreneurs to navigate and influence uncertain landscapes by making do with what they have and being responsive to emerging possibilities. (Mansoori & Lackéus, 2017)

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Are Effectuation and Lean Startup compatible?

Effectuation and Lean Startup are different approaches but both of these also share some similarities. Both approaches states that development is always increasing, great products are created with countless of feedbacks, changes and improvements. The best and final product does not happen at the start or very quickly. Addition to that, both approaches heavily depend on the stakeholders' feedback about a product which will then be used to make changes to a product that can satisfy or meet the requirements based on those feedbacks (Morales, 2020).

Even though both approaches do not have a lot of similarities, the differences actually allow both to be compatible because it enhances its effects. When combined, it becomes LETA, which stands for Lean Entrepreneurial Thinking and Acting (Sebastiao, 2014). LETA is a mixture of both approaches which means an individual or organization having a mindset that can approach the lean startup, while having a common objective such as creating or testing products as quickly as possible and keeping expenses as low as possible.

Thus, Effectuation and Lean Startup are compatible.
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References

  • Sarasvathy, S. D. (2001). Causation and Effectuation: Toward a Theoretical Shift from Economic Inevitability to Entrepreneurial Contingency. The Academy of Management Review, 26(2), 243–263. https://www.jstor.org/stable/259121
  • Khurana, I., Dutta, D. K., & Schenkel, M. T. (2021). Crisis and arbitrage opportunities: The role of causation, effectuation and entrepreneurial learning. International Small Business Journal, 40(2), 236–272. https://doi.org/10.1177/02662426211061679

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