Causation, Effectuation, and Management Challenges in New Ventures

This essay explores the concepts of causation and effectuation as alternative approaches employed by entrepreneurs in the process of new venture development, particularly in the context of contemporary management challenges. Causation is presented as a planned strategy approach, while effectuation is related to creating value for businesses, offering entrepreneurs choices between effectual and predictive thinking. The essay highlights that both approaches require planning and analysis, assuming situations where outcomes are predictable through statistical inference. It further discusses the principles of effectuation, such as the 'bird in hand,' 'affordable loss,' and 'lemonade principle,' and contrasts the causation model, which emphasizes pre-determined objectives, with effectuation, which starts with choosing the means and controlling objectives. The essay concludes that both causation and effectuation significantly impact entrepreneurial decision-making, with successful entrepreneurs like Sir James Dyson utilizing both concepts to build successful businesses. Desklib provides access to this essay and other resources for students.

Essay

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Business entrepreneurs in 21st century are required to anticipate change as well as be agile
for dealing with management issues which are coming from all angles (Scott, Klandt and Rosa,
2018). Management challenges have always faced by enterprises, however, things are changing
in 21st century along with challenges which companies require to overcome for securing future
success. Organisations operating at local or global level need to over contemporary management
issues for achieving competitive sustainability. Effectuation and causation are terms which
provide insights about the ways decisions are devised in new venture creation in addition to
understanding dynamics of management issues in contemporary international environment of
business. The aim of the essay is to discuss about artefacts including firms, organisations and
markets requiring novel approach to venture creation concept.
The essay highlight information about causation and effectuation with relevance to
understanding dynamic of management issues of business in contemporary business environment
internationally.
MAIN BODY
Causation is said to a typical end driven decision making logic in which managers plan,
execute together with follow up strategic decisions which are aimed towards attaining particular
goal or topic. It is delineated as process which take effect as provided and emphasis on choosing
among means for creating the effect. In accordance to Villani, Linder and Grimaldi (2018),
artefacts, such as firms and organisations in their nascent stages tend to employ effectuation at
initial level and then shift to causation when achieve growth in resources together with network
(Villani, Linder and Grimaldi, 2018). Most of business concerns have target for sharing ideas
together with providing resources effectively. For example, while planning a new venture, such
as HungryPanda, entrepreneur makes use of causation approach to plan tactics to achieve
predetermined goals and deal with contemporary management issues in dynamic business
environment.
In new venture creation, concept of causation takes specific effect by entailing picking of
target segments as pet predictive information. Business managers in contemporary business
environments use causation for the identification of resources at a specific point in time as well
as using them in flexible manner (Futterer, Schmidt and Heidenreich, 2018). With causation,
1

business managers concentrate on maximising potential returns for making decisions through
choosing optimal strategies in order to understand dynamics of management issues in business.
The theoretical approach of causation deals with new venture creation as entrepreneurs choose
the concept that tends to rule out opportunities which do not lend themselves towards ex ante
planning. Similarly, choice for causation approach impact international opportunities for new
venture creation.
Sarasvathy (2001) framed as general theory of making decisions in uncertain
circumstances (Sarasvathy, 2001). However, Sarasvathy (2008) highlights that human actions are
predominant factors which shape future of new venture (Sarasvathy, 2008). While creating new
venture, business plan has greater relevance as it assists in performing number of tasks.
Investment seeking entrepreneurs uses business plan to create new venture for conveying vision
to potential investors. There are certain management issues faced by entrepreneurs while creating
new venture. One of them is uncertain about future. It has been analysed that only 20% managers
have full clarity for the ways business initiatives impacts goals of an enterprise (Yang, Kher and
Lyons, 2018). Managers in 21st century find themselves more prone for devising rash decisions.
In context to new venture creation, human resource managers say that keeping strong
organisational culture alive is biggest issue in dynamic business world. For instance, managers of
HungryPanda adapting hybrid working arrangement results in more dispersed team and limits
interaction with peers. Development of business plan is a rational practice for entrepreneurs of
new venture as it assists them for understanding management issues and dealing with them for
earning larger profits via increasing sales volume or efficiency gains.
Sarasvathy (2008) says that concept of effectuation means an emphasis towards making
selection decision among possible effects which are created with set of means. In aspect to new
venture creation, entrepreneurs follow effectuation approach to initiate process of new venture
with general aspirations to build an enterprise and use new information for change course. As it
is determined that future is unpredictable, entrepreneur of new business, for example
HungryPanda, using effectuation concept try distinct approaches in market prior establishing on
business model. Moreover, firms and organisational managers are more likely to put mechanisms
into place which permit them to have certain control over results (Strauß, Greven and Brettel,
2021). Theoretical foundations in effectuation approach emphasises entrepreneurial framing,
meaning, the ways entrepreneur view inputs, make inferences, perceive alternatives addition to
2

attend to constraints. In 21st century, entrepreneurs follow effectual logic to make less attempts
for future along with change initial goals and devise essential adjustments as necessary. With
effectual logic, entrepreneur frame future for new venture as outcome from co-creating through
intentional agents.
Within effectuation, objectives and goals emerge in course of process. An example is
Curry in a Hurry thought experiment which demonstrates the ways goals emerge as entrepreneur
reacts towards environmental contingencies (Szambelan, Jiang and Mauer, 2020). Within
traditional business planning, examples related to predefined goals are found that portray
entrepreneurs taking initiative with very precise idea of what they are going to market. In aspect
to HungryPanda, entrepreneur relies on emergent goals to remain flexible to strategic goals of
internationalisation.
There are certain principles of effectuation that acts as guidance for entrepreneur to
understand dynamic of business management issues in contemporary business environment. One
of principle of effectuation is bird in hand that states starting with means. In 21st century,
entrepreneurs approach opportunity as per who they are, whom they know as well as what they
know (Stoiko, Egan and Duane, 2019). In relevance to HungryPanda, entrepreneur work from
competence and network to envision possibilities despite of target opportunities as per expected
returns and market size.
Another principle of effectuation is affordable less principle that says an emphasis on
downside risk. One of common stereotype is entrepreneurs are risk takers, however,
entrepreneurs so not perceive themselves in same manner. They believe to manage or limit risk.
For instance, entrepreneur of HungryPanda do this through investing at each phase of the
journey, only the energy, resources addition to time they afford to lose. Moreover, it has been
determined that entrepreneurs while planning new venture creation choose actions together with
goals for learning specific things for opportunities of business and pivot, adapt or cut bait as per
their learning. In contemporary world, entrepreneurs find upside in experiments, when in
situation when such experiments do not end up becoming booming businesses (Gil-Barragan,
Belso-Martínez and Mas-Verdú, 2020). Lemonade principle is another principle of effectuation
that says leveraging contingencies. Managers of corporation are obsessed with what if
circumstances, making attempts for creating plans together with defining results for every
eventuality. For instance, entrepreneur of HungryPanda despite embrace fact which they have no
3

idea of occurrence in next hours, business models need to change along with adapt as learning
are from market. As an outcome, entrepreneur view surprises as ways for devising business cases
stronger.
Causation model is developed by keeping thought process of entrepreneur which states
that they tend to become casual thinkers. It works on the principle of having a pre-determined
objective and clear choices to accomplish them in a strategic manner. Whereas, effectuation
starts with choosing the means of achieving desired objectives and ends with the
accomplishment of organisational goals. In causation model, it is significant to attain predictive
or pre-determined goals or objectives. Whereas in the effectuation process, entrepreneurs control
the ways and later determine objectives. In causation model, competition is promoted while in
effectuation, partnerships are formed. These two concepts are similar too in varied aspects. As
these are developed while analysing entrepreneurial practices and identified by Professor
Saraswathy. These two practices essentially affect entrepreneurial decision-making process and
divides the entrepreneur into two dimensions.
Effectuation is regarded as a crucial term which helps entrepreneur to determine their
way of thinking. This helps entrepreneurs in making critical decisions effectively. James Kotler
advocates that decision-making process can become easy by choosing among various
alternatives. This concept relates with effectuation as both suggests to choose alternatives in
decision-making process.
Sir James Dyson is an entrepreneur who take his business decisions on the basis of both
concepts of effectuation and causation. Dyson thoughts are long term which helps him to make a
large business empire. Dyson has given priority in improvising their research and development
department in order to bring innovative features in their products which helped to increase its
viability in market. Dyson has worked with preservance and patience which helped him to
improve his business operations (Baaken, Alfert and Kliewe, 2019).
CONCLUSION
From the essay, it has been concluded that causation addition to effectuation are alternative
approaches used by entrepreneur in process of new venture development. Causation is associated
to planned strategy approaches. Effectuation is related to creating values for businesses wherein
entrepreneurs have choices among effectual thinking and predictive thinking. Planning and
4

analysis needed by the approaches assume situations wherein the distribution of results in the
group are predictable through statistical inference.
5

REFERENCES
Books and Journals:
Scott, M. G., Klandt, H. and Rosa, P. eds., 2018. Educating entrepreneurs for wealth creation.
Routledge.
Villani, E., Linder, C. and Grimaldi, R., 2018. Effectuation and causation in science-based new
venture creation: A configurational approach. Journal of Business Research. 83. pp.173-
185.
Futterer, F., Schmidt, J. and Heidenreich, S., 2018. Effectuation or causation as the key to
corporate venture success? Investigating effects of entrepreneurial behaviors on
business model innovation and venture performance. Long Range Planning. 51(1).
pp.64-81.
Yang, S., Kher, R. and Lyons, T. S., 2018. Where do accelerators fit in the venture creation
pipeline? Different values brought by different types of accelerators. Entrepreneurship
Research Journal. 8(4).
Strauß, P., Greven, A. and Brettel, M., 2021. Determining the influence of national culture:
insights into entrepreneurs’ collective identity and effectuation. International
Entrepreneurship and Management Journal. 17(2). pp.981-1006.
Szambelan, S., Jiang, Y. and Mauer, R., 2020. Breaking through innovation barriers: Linking
effectuation orientation to innovation performance. European Management
Journal. 38(3). pp.425-434.
Stoiko, M., Egan, T. and Duane, A., 2019, August. Entrepreneurial Internationalization Takes the
Effectuation Turn: A Conceptual Framework. In Proceedings of the Ninth International
Conference on Engaged Management Scholarship (2019).
Gil-Barragan, J. M., Belso-Martínez, J. A. and Mas-Verdú, F., 2020. When do domestic
networks cause accelerated internationalization under different decision-making logic?
Evidence from weak institutional environment. European Business Review.
Baaken, T., Alfert, C. and Kliewe, T., 2019. Corporate venturing–a new way of creating a
company’s future. Optimum. Economic Studies, (1 (99)), pp.3-21.
Online:
Sarasvathy. S. D. 2001. Causation and Effectuation: Toward A Theoretical Shift from Economic
Inevitability to Entrepreneurial Contingency. [Online]. Available through:
<file:///C:/Users/user/Downloads/Causation__1724266625%20(2).pdf>
Sarasvathy. S. D. 2008. Effectuation: Elements of Entrepreneurial Expertise. [Online]. Available
through:<https://www.researchgate.net/publication/228786046_Effectuation_Elements_
of_Entrepreneurial_Expertise<
6