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Effectuation & Causation: The effect of entrepreneurial experience and market uncertainty

Oude Luttikhuis, Jeroen (2014) Effectuation & Causation: The effect of entrepreneurial experience and market uncertainty.

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Abstract:One frequently asked question in the field of entrepreneurship is: How come firms into existence? Entrepreneurship can be defined as the creation of organizations. Over the years, various approaches to entrepreneurship have been explained in existing literature. Early approaches towards entrepreneurship were planned strategies as opposed to emergent strategies. These approaches were influential for other entrepreneurial strategies, such as the causation and effectuation approach, introduced in the late 90’s. Based on the underlying logic of causation and effectuation, strategies as ‘transformative’, ‘visionary’, and ‘adaptive’ were developed. This research is based upon two entrepreneurial strategies, causation and effectuation. Causation as a planned strategy with as underlying logic prediction, as opposed to effectuation as an emergent strategy based on non-predictive control. The question remains: do entrepreneurs differ in applying entrepreneurial strategies when starting a business? This research attempts to answer this question for different groups of entrepreneurs: 1) highly experienced entrepreneurs and less experienced entrepreneurs, and 2) entrepreneurs in uncertain and less uncertain markets. The following research question covers the central theme of this research: “Do entrepreneurs have a preference for either the causation or effectuation approach, or a combination of these approaches, based on their experience and market uncertainty?” Based on theoretical explanations we expect entrepreneurs who are highly experienced to have a preference for the effectuation approach, over the causation approach. Revised, it seems plausible entrepreneurs with less experience prefer the causation approach. In addition, entrepreneurs in uncertain markets are expected to have a preference for the effectuation approach and entrepreneurs in less uncertain environments should favor the causation approach. The empirical setting of this study is the business plan context. Using a coding scheme, 199 business plans of high-tech companies have been analyzed. Results of this study provide evidence for the conceptual literature on entrepreneurial expertise and decision making under uncertainty by entrepreneurs. Expert entrepreneurs rely much more on the effectuation approach than novice entrepreneurs as they score higher on all dimensions of effectuation. However, it seems that novice entrepreneurs do not rely more on causation than expert entrepreneurs do. Novice entrepreneurs score higher on the predictive control dimension, and expected return dimension of causation, whereas expert entrepreneurs score higher on the ends-oriented dimension, and competitive analysis dimension of causation. Results also indicate that entrepreneurs in uncertain environments rely more on effectuation than entrepreneurs in less uncertain environments. Entrepreneurs in uncertain environments score higher on the non-predictive control dimension, means-oriented dimension, and partnerships dimension of effectuation. Again, we cannot conclude that entrepreneurs in less uncertain environment rely more on causation than entrepreneurs in uncertain environments. Entrepreneurs in less uncertain environments score higher on the predictive control, and ends-oriented dimension of causation whereas those in uncertain environment do better on the expected return, and partnerships dimension. The findings of this study contribute in several ways to the field of entrepreneurship. By developing an extensive coding scheme and building a database with effectual and causal data on 199 high-tech start-up companies, we have provided an opportunity for cognitive scientists to further expand the field of entrepreneurship, and specifically the causation and effectuation approach, related to the business plan context. This study also provided evidence relating effectuation to entrepreneurial expertise and decision making under uncertainty. From a practical point of view, results of this study should help us understand which strategies are employed by entrepreneurs, under which circumstances.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:70 social sciences in general
Programme:Business Administration MSc (60644)
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