Effectuation in Entrepreneurship - WENDY KOH XIN HUI (TPO77721)

Effectuation in Entrepreneurship

Can effectuation also be used in companies? Or is it useful only for entrepreneurship?

Yes, effectuation also be used in companies. It is a logic and process that can be utilized as a firm develops in the early startup phase of growth.  (Sarasvathy,2024). Effectuation is the way entrepreneurs think and make decisions to create a better future by taking action and making things happen. Effectuation manages to empower the individual to have a desire to improve their lives by enabling the creation of firms, markets, and ideas. It is also the thinking ways that are focused on using the resources for solving the problems and issues. Effectuation is not only useful for entrepreneurship but also a concept that can be used for making decisions with high levels of uncertainty. 

 

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

The key difference between effectuation and other approaches in entrepreneurship includes the logic of decision-making. Dr. Saras Sarasvathy, creator of the framework, said, the key difference between other approaches and the effectual one is “how you think about goals and means”.For effectuation, it is more focused on using a set means to reach or get new and different goals. Instead of using traditional approaches, it is a mean-driven approach that emphasizes starting from what the entrepreneur owns including resources. Effective thinkers believe that “If I can control the future, I do not need to predict it.”(Sarasvathy,2024). It supports contemporary approaches to innovation management and offers competitive advantages as well. 

Are the effectual approach and the traditional (causal) approach mutually exclusive? 

No, the effectual approach and the traditional (casual) approach are not mutually exclusive. The effectual approach is unable to act as the replacement of the causal approach. In fact, many companies utilize the hybrid approach which is the combination of both approaches. The entrepreneur uses an effectual approach to identify the chances and uses the casual approach to set specific targets and goals to develop the growth of the business. Put simply, effectuation is suitable to use in the beginning, while casual is for ensuring growth. 

Does effectuation mean: “not planning”? 

No, effectuation does not mean “not planning” at all. It still depends on how you consider a plan. For planning, the individual needs to have specific goals to achieve. The business planning process in entrepreneurship can help to identify the needs to be accomplished. However, in effectuation, all the actions and processes will start with the available means that the entrepreneur has, and those resources are the key input for gradually setting goals. ( Carlos,2020)

Are Effectuation and Lean Startup compatible?

Yes, effectuation and learn Startup are compatible. Effectuation is one of the thinking that allows the individual and organization to approach to Lean Startup. The Lean Startup method enables entrepreneurs to identify the problems that need to be solved. It will consider experimentation to be more valuable than detailed planning. Thus, both can help to reduce risk, adapt to change, and foster innovation as well. 

References:

Beer, Katharine. “Lean Startup: Defined, How It Differs From a Traditional Business.” Accessed 27 April 2024.

https://www.investopedia.com/terms/l/lean-startup.asp

Chron. “Entrepreneurship and Business Planning.” Small Business - Chron.com, Accessed 22 July 2021.

https://smallbusiness.chron.com/entrepreneurship-business-planning-2532.html

Sarasvathy. “What is Effectuation.” Effectuation.org, Accessed 27 April 2024.

https://effectuation.org/effectuation-101