Ecological rationality and entrepreneurship: How entrepreneurs fit decision logics to decision content and structure

During new venture creation, entrepreneurs make decisions in a variety of areas from seeking funding to hiring employees. When and why entrepreneurs use effectual or causal logics to make such decisions is poorly understood. In this study, we integrate ecological rationality theory and effectuation theory to examine how the nature of decisions influences entrepreneurs' use of decision logics. In a qualitative study with 41 entrepreneurs across 290 decisions, we explore how decision content (what the decision is about) and decision structure (what information about a decision is represented in the decision-maker's mind) influence entrepreneurs' use of effectual or causal logics. We extend our findings in an experiment with 224 entrepreneurs where we manipulate decision structure. Our results suggest that decision content influences entrepreneurs' mental representations of decision structure. In turn, the combination of two elements of decision structure — decision complexity and the perceived costs of implementing different options — drives entrepreneurs' use of decision logics. We contribute to the effectuation literature by integrating it with ecological rationality theory, introducing the concept of decision fit as a driver of decision logics, and developing our understanding of hybrid decision-making (the simultaneous use of effectuation and causation).     

International network formation,home market institutional support and post-entry performance of international new ventures

Effectuation and causation decision-making logics are noted to be major alternative approaches to international network formation. However, knowledge is lacking on how and the conditions under which the two approaches contribute to post-entry performance of international new ventures (INVs). We integrate the theory of effectuation and institutional development logic to explain how effectuation and causation approaches to international network formation individually and jointly contribute to post-entry performance under varying conditions of home market institutional support. We test our proposed framework on primary data from 228 INVs in a sub-Saharan African economy. Results suggest that greater uses of both effectuation and causation approaches to international network formation are associated with stronger post-entry performance. More interestingly, results show that the joint effect of the two international network formation approaches on post-entry performance is amplified under conditions of low home market institutional support. Our findings provide theoretical and managerial insights on the importance of complementing effectual and causal reasoning in international network formation in weak home market institutional environments.     

Weaving network theory into effectuation: A multi-level reconceptualization of effectual dynamics

This paper positions effectuation as a network-driving and network dependent phenomenon and suggests that understanding networks and network processes is essential to understanding the dynamics of effectuation. We argue that the implementation of effectuation is influenced by the nodal, relational, and structural characteristics of pre-existing and emerging networks, and by the processes through which these networks come about. We use these arguments to develop a multi-level, multi-theoretical reconceptualization of effectuation that provides for distributed agency and collective cognition of network members. We allow for the simultaneous and interactional use of effectual and causal logics, as well as the co-construction of knowledge, identity, and social capital within and across network levels. Our model also addresses changing uncertainty as opportunities develop, nuances of effectual interactions, and evolving market dynamics. Our propositions and reflections offer directions for further studies at the intersection of network and effectuation research.Executive summaryThere is little doubt that effectuation is reshaping how we think about entrepreneurial cognition and behavior. A core argument is that under conditions of uncertainty, entrepreneurs can co-create opportunities by collaborating with other willful agents. This moves us away from classical views of entrepreneurship and positions effectuation as a network-driving and network-dependent phenomenon. Yet, recent debate highlights that effectuation research has paid insufficient attention to the network of external parties involved. As a result, although the extant model of effectuation recognizes the importance of networks, our understanding of the relationship between effectual logic and entrepreneurial networks is far from complete.Several theoretically important and practically relevant questions arise from this knowledge gap. For example if we think about network development, how are potential stakeholders brought to mind and persuaded to commit if end-points and stakeholder preferences are both unknowable? What are the characteristics (i.e. structure, content and governance) of the networks that emerge through these commitments? Reciprocally, how do the characteristics of the emerging network influence effectual processes and outcomes?In this paper, we begin to address this line of questioning by considering effectuation not only at the level of the individual but also through lenses reflective of the three levels of analysis commonly adopted in network research: i) dyadic relationships, ii) the entrepreneurial network, and iii) the market more generally. While we attend to pre-existing networks (the constitution of which is likely to affect the probability of adopting effectual logic), our focus is on linking the individual and emerging networks across these levels.At the level of the individual, we break from prior effectuation research and ascribe new and influential roles to entrepreneurial ideas and instrumental mindsets in focusing an entrepreneur's attention on particular relationships (i.e. the cognitive activation of a cohesive network involving interested and persuadable individuals). At the level of the dyad, we suggest the very nature of interactions between actors can influence individual choice of logic. We specify that stakeholders will expect signs of process legitimacy (e.g. cognitive flexibility on the part of the entrepreneur) before making effectual commitments. We also move away from assumptions about altruistic behavior to suggest that power and influence will accrue to stakeholders whose resources are at risk and/or perceived by others to resolve uncertainty. At the level of the entrepreneurial network, we link effectuation to a brokerage orientation (tertius iungens) that enhances inclusiveness surrounding means and collective cognition. Moreover, we move beyond the narrow view of facilitating and constraining factors portrayed in the effectuation literature to argue that (e.g.) i) with respect to network content, resource specificity will shape possible futures; ii) with respect to governance, trust, supported by social mechanisms will predominate; and, iii) with respect to structure, specific network characteristics will be more supportive of certain aspects of effectuation than others (e.g. cohesive networks are more supportive of collaboration, but may limit the flexibility needed to embrace contingencies). At the market level, we posit that on the one hand, institutions will shape effectual processes. On the other hand, effectual processes are more likely than causal processes to create new institutions and/or supplant existing institutions.Overall, our study contributes to the understanding of both effectuation and networks by offering a multi-level, multi-theoretical re-conceptualization of the dynamics of effectuation. Our arguments should spur research in at least three interdependent areas: i) uncertainty and individual cognition; ii) network processes surrounding interactions and commitments; and iii) the contingent effects of network characteristics on effectuation. For practitioners, our insights should help shape thoughts about i) who to interact with in the face of uncertainty; ii) what stories to tell and how to deal with image management; iii) what to expect during negotiations; iv) how to broker relationships to enhance the ‘co’ in ‘co-creation’; and moreover, v) what network characteristics might facilitate or constrain their efforts.     

Business motivation and informational needs in internationalization

We focus on an analysis of entrepreneurs’ motivation in business internationalization. Following on from the Regulatory Focus Theory, two differing approaches emerge: promotion (PMF) and prevention (PVF). PMF entrepreneurs approach internationalization spurred by their own motivation as opposed to PVF entrepreneurs who engage in internationalization motivated by the competitive environment. We propose that entrepreneurs’ motivational orientation depends on their prior international experience relating to business internationalization. Moreover, an internationalization strategy requires information regarding markets, barriers and support programmes. Entrepreneurs’ motivational orientation also impacts their informational concerns and alertness to informative stimuli. For the empirical application, we assess the opinions of entrepreneurs working in the Spanish natural stone sector. Findings reveal that entrepreneurs’ motivational orientation with regard to international opportunities changes as they gain experience, which at the same time alters their alertness and their informational concerns.     

Corporate effectuation: Entrepreneurial action and its impact on R&D project performance

Innovative products are widely recognized as an important source of competitive advantage. However, many companies have difficulties finding efficient and successful approaches to different types of R&D projects, particularly those that involve a high level of innovativeness. Therefore, the present study moves effectuation theory from the entrepreneurial context to R&D research. First, the characteristics of an effectual approach in the context of R&D projects are developed and differentiated from those of conventional prediction-based strategies (causation). Second, using a thorough qualitative and quantitative scale-development process to capture particularities of effectual and causal dimensions in the R&D context, expert interviews and a pilot study (123 R&D projects), the study develops a multi-factor measurement model of effectuation and causation. These measures are validated in a follow-up study with a larger sample of 400 projects. Third, the new measures are applied to test two central hypotheses: (a) effectuation is positively related to success in highly innovative contexts, (b) causation approaches are beneficial in projects with low levels of innovativeness. Overall, this study moves the effectuation logic from the entrepreneurial to the corporate R&D context, captures its particularities, and investigates its performance outcomes.     

Predictive and effectual decision-making in high-tech international new ventures – A matter of sequential ambidexterity

This study investigates the international opportunity exploration and exploitation processes of high technology international new ventures (INVs) operating in the global medical devices sector. Drawing upon the effectuation and causation perspectives, we contribute to the micro-foundations of international entrepreneurship research in the early innovation development space by focusing on decision-making logics of techno-entrepreneurs of INVs. Specific focus is afforded to the phases of their exploration and exploitation of international opportunities leading to international new venture creation. In the pre-start-up and start-up stages of international new ventures, we find that sequential ambidexterity applies to how the subject firms manage the exploration and exploitation of opportunities in the delivery of their innovations to global markets.This research advances prior international entrepreneurship studies by focusing on the opportunity and innovation processes on the individual level. We identify different decision-making logics in the different phases and contrary to earlier findings in the international entrepreneurship (IE) area, we found causation logic to dominate the initial stages of exploration and effectuation logic, in the latter stages. Prior commercial experience presented itself as a key determining factor in the decision-making path chosen by international techno-entrepreneurs. Our study further extends the view of organizational ambidexterity by offering empirical insights into the relevance of sequential ambidexterity for understanding the processes of innovation exploration and exploitation in high-tech INVs and the decision-making logics driving these processes.     

Causation and effectuation processes: A validation study

We develop and validate measures of causation and effectuation approaches to new venture creation and test our measures with two samples of entrepreneurs in young firms. Our measure of causation is a well-defined and coherent uni-dimensional construct. We propose that effectuation is a formative, multidimensional construct with three associated sub-dimensions (experimentation, affordable loss, and flexibility) and one dimension shared with the causation construct (pre-commitments). As specified by Sarasvathy (2001), we also show that causation is negatively associated with uncertainty, while experimentation, a sub-dimension of effectuation, is positively correlated with uncertainty. The major contribution is the resulting validated scales that measure causation and effectuation.     

Antecedents and consequences of effectuation and causation in the international new venture creation process

The selection of the entry mode in an international market is of key importance for the venture. A process-based perspective on entry mode selection can add to the International Business and International Entrepreneurship literature. Framing the international market entry as an entrepreneurial process, this paper analyzes the antecedents and consequences of causation and effectuation in the entry mode selection. For the analysis, regression-based techniques were used on a sample of 65 gazelles. The results indicate that experienced entrepreneurs tend to apply effectuation rather than causation, while uncertainty does not have a systematic influence. Entrepreneurs using causation-based international new venture creation processes tend to engage in export-type entry modes, while effectuation-based international new venture creation processes do not predetermine the entry mode.     

‘Expect the unexpected’: Implications of effectual logic on the internationalization process

International entrepreneurship literature has indicated that entrepreneurs often increase international activities along unexpected lines of reasoning without having a precise goal, resulting in “unplanned” internationalization. We argue that “unplanned” internationalization does not necessarily involve non-logical decisions; but, entrepreneurs can follow an effectual rather than causal logic and may base their decisions on the affordable loss principle rather than on the maximization of expected returns. Based on five case-studies, we discuss the implication of effectual decision-making on the internationalization process. We find that switching from causal to effectual logic allows firms to rapidly increase the level of commitment in the foreign market and could assist in overcoming liabilities of outsidership and, therefore, successfully increase the level of commitment in the foreign market.     

学术型创业家与企业绩效的关系研究

This study attempts to identify factors influencing the performance of enterprises established by academic entrepreneurs(AE) and to explore the relationship between these factors and enterprise performance. To this end, the authors propose a three-dimension model consisting of academic entrepreneurs’ personal traits, human capital, and the entrepreneurial environment. Data of 84 AEs from 12 Chinese universities are used to empirically test and improve the model. Theoretical contributions and implications are also discussed.      

Effectuation under risk and uncertainty: A simulation model

Effectuation was first proposed as an expert entrepreneur's decision-making framework under uncertainty, but the applications of effectuation beyond the condition of uncertainty have seen less attention. Using an agent-based simulation model, this paper investigates the effectiveness of effectuation relative to causation in uncertain and risky contexts. The simulation overcomes the shortcomings of think aloud protocols typically used in effectuation research. The results suggest that effectuation outperforms causation in both risky and uncertain contexts until the entrepreneur can predict the future correctly > 75% of the time. This suggests expanding the boundary of effectuation from uncertainty to whenever predicting the future is challenging.     

Social interaction via new social media: (How) can interactions on Twitter affect effectual thinking and behavior?

Social interaction plays a central role in effectuation processes, yet we know little about the implications for effectuation when an entrepreneur interacts via particular channels such as social media. To address this gap, our paper uses an inductive, theory-building methodology to develop propositions regarding how effectuation processes are impacted when entrepreneurs adopt Twitter. Twitter is a microblogging platform that can facilitate a marked increase in interaction. We posit that Twitter-based interaction can trigger effectual cognitions, but that high levels of interaction via this medium can lead to effectual churn. We also posit that there is one factor, perceived time affordability, that predicts the level of social interaction in which an entrepreneur engages via Twitter. Further, we propose two factors that moderate the consequences of social interaction through Twitter. These factors are community orientation and community norm adherence. Implications for our understanding of effectuation, of social interaction, and of the impact of social media on entrepreneurial firms are discussed.     

Searching for e-mentoring practices for SME staff development

The objective of this article is to consider e-mentoring models applicable for SME staff development. The article examines a study conducted collaboratively between a university of applied sciences and entrepreneurial organisation, ascertaining organisation members’ interest in e-mentoring for professional development. In this Finnish case, entrepreneurs’ skill deficits and e-mentoring’s possibilities as a learning support are identified, and the practicality and meaningfulness of different e-mentoring forms examined. The results indicate e-mentoring is expected to facilitate support from experienced entrepreneurs in practical professional development. Peer mentoring online was slightly preferred over one-on-one expert e-mentoring.     

Co-creation in effectuation processes: A stakeholder perspective on commitment reasoning

In this article, we seek to contribute to theory on market co-creation through effectuation. To achieve this goal, we examine the different kinds of reasoning behind stakeholder commitments in effectuation processes. Although effectual and causal logics sufficiently account for decision-making in instrumental rationality, scholars have paid little attention to value rationality, and how it might influence stakeholder commitments and behavior. Different commitments may follow different rationales, ranging from instrumentally rational commitments based on causal or effectual logics, to value rational commitments based on state-belief or change-belief. The typology of these four commitment reasoning types provides a framework for analyzing stakeholder behavior based on different perceptions of the commitment decision space. Our typology shows that commitments based on value rationality may be qualitatively different from those driven by instrumental rationality and that value rationality may enable commitments under conditions that preclude instrumentally rational actions. Furthermore, different commitments influence market co-creation processes in different ways. In this article, we examine how different commitments affect (1) conflict and effectual churn and (2) the relative path dependence, or shapability, of the market co-creation space. Based on this typology, we propose avenues for future research on co-creation in effectuation processes, with a special focus on stakeholders.     

National culture,effectuation, and new venture performance: global evidence from student entrepreneurs

Studies examining the relationship between national culture and entrepreneurial activity have largely ignored the influence of culture on individual decision-making. Recent years have witnessed considerable interest in cognitive logics employed by entrepreneurs. A growing body of literature examines factors contributing to the relative reliance on causal and effectual reasoning as entrepreneurs attempt to launch and grow new ventures, with evidence suggesting expert entrepreneurs engage more heavily in effectual reasoning than do novice entrepreneurs. The present study examines the mediating role of cognitive logic in explaining venture performance in differing cultural contexts. A series of hypotheses are tested using a sample of 3411 new ventures started by student entrepreneurs from 24 countries based on the Global University Entrepreneurial Spirit Students’ Survey. The findings indicate that both venture cognitive logics have positive effects on new venture performance and serve as mediators in the culture-performance relationship. Based on these findings, we conclude entrepreneurial reasoning is shaped not only by personal characteristics of entrepreneurs but also by aspects of the cultural context.     

A Study of the Ethical Issues of Private Entrepreneurs Participating in Politics in China

Since the 16th National Congress of Communist Party of China (16th NCCPC) in 2002, more and more private entrepreneurs have appeared on the political arena in China. The article first describes the state of the phenomenon, and analyzes the reasons and the related ethical issues of private entrepreneurs participating in politics. For this purpose, the article begins by suggesting a framework of analyzing the ethical analysis of corporate political actions, then applies it to a case study of the phenomenon, and finally, makes some policy suggestions to the government for regulating the practice of private entrepreneurs’ involvement in politics.     

Women’s Careers at the Start of the 21st Century: Patterns and Paradoxes

In this article we assess the extant literature on women’s careers appearing in selected career, management and psychology journals from 1990 to the present to determine what is currently known about the state of women’s careers at the dawn of the 21st century. Based on this review, we identify four patterns that cumulatively contribute to the current state of the literature on women’s careers: women’s careers are embedded in women’s larger-life contexts, families and careers are central to women’s lives, women’s career paths reflect a wide range and variety of patterns, and human and social capital are critical factors for women’s careers. We also identify paradoxes that highlight the disconnection between organizational practice and scholarly research associated with each of the identified patterns. Our overall conclusion is that male-defined constructions of work and career success continue to dominate organizational research and practice. We provide direction for a research agenda on women’s careers that addresses the development of integrative career theories relevant for women’s contemporary lives in hopes of providing fresh avenues for conceptualizing career success for women. Propositions are identified for more strongly connecting career scholarship to organizational practice in support of women’s continued career advancement.     

Entrepreneurship as a utility maximizing response

Research on entrepreneurship has investigated what entrepreneurs do, what happens when they act as entrepreneurs, and why they act as entrepreneurs. This paper contributes to the latter investigation, and specifically asks why some people choose to be entrepreneurs, while others choose to be employees. Responding to prior literature recognizing the lack of a coherent theory of entrepreneurship and calling for a rigorous examination of the decision to become an entrepreneur, this paper presents an economic model of the career decision. We postulate that the individual chooses an entrepreneurial career path, or a career as an employee, or some combination of the two, according to which career path promises maximal utility (or psychic satisfaction).We assume that the individual's utility from any particular occupation, whether self-employed or employed, depends on income (which depends in turn on ability), as well as working conditions such as decision-making control, risk exposure, work effort required, and other working conditions (net perquisites) associated with that occupation. Individuals will exhibit either preference or aversion towards each of the specified working conditions, and it is the degree of that preference or aversion, in conjunction with the quantum of each working condition, which determines the total utility that the individual will derive from each particular occupation.We show that all employees will have an incentive to be self-employed (if they could assemble the same resources as their employer). Also, the greater their managerial and entrepreneurial ability, the greater will be their incentive to be self-employed, other things being equal. Next, we show that a more positive attitude to work (i.e., a lesser aversion to work effort required) provides a greater incentive to be self-employed.The individual's degree of risk aversion also influences the choice to be an entrepreneur. The more tolerant one is of risk bearing, the greater the incentive to be self-employed. Similarly, the greater the preference for independence, or decision-making control, the greater the incentive to be self-employed. Finally, it is noted that perquisites (and avoidance of irksome elements) can potentially be controlled to a greater degree when self-employed, so the individual will consider the differences in these other working conditions when contemplating a career choice.But it is the sum of the utility and disutility from these sources which determines the career decision. Thus, we demonstrate that positive attitudes toward risk, work, and independence are neither necessary nor sufficient conditions for a person to want to be an entrepreneur. Entrepreneurial abilities and attitudes are desirable in employment situations, therefore, an employer may choose to bribe an entrepreneurial individual to be an employee by offering more income and greater independence, for example.We demonstrate that firms recruiting employees, or venture capitalists considering funding an entrepreneur, should in their own best interests investigate the person's attitudes toward income, risk, work, and independence as well as their abilities, as these attitudes underpin the person's worth as an employee and their incentive to be self-employed. Management educators should design programs which enhance the entrepreneurial abilities and attitudes of individuals, and the individuals themselves should consider their `attitudinal' make-up before committing to entrepreneurship.     

Foreign market entries,exits and re-entries: The role of knowledge,network relationships and decision-making logic

We focus on the following question: how are knowledge, network relationships and decision-making logic interrelated throughout the internationalization process – foreign market entries, exits and re-entries? We contribute to the internationalization literature, network approach and effectuation theory that have not examined these interrelationships during internationalization – especially de- and re-internationalization – in detail yet. Thereby, we provide a more complete view of internationalization. Based on a single punctuated longitudinal case study, we show that lack of knowledge results in mostly effectual (opportunity-driven) decision-making: finding customers via weak ties, trade fairs and unsolicited export orders and experiencing numerous market exits and re-entries due to “experimenting”. Knowledge acquisition leads to more causal (systematic, plan-driven) decision-making and stronger ties, but serendipitous (“by chance”) entries can still occur, and exiting and re-entering foreign markets may continue. We suggest that managers should network and acquire knowledge actively, use both decision-making logics and accept uncertainty as normal during internationalization.