Entrepreneurship Laura Laak
Total Page：16
File Type：pdf, Size：1020Kb
Causal opportunity creation and effectual opportunity exploitation: Insights from ‘heavy metal’ entrepreneurship Laura Laaksonen, Researcher Aalto University School of Economics IDBM Program, P. O. Box 21230, FI-00076 AALTO +358 503836199 [email protected] Antti Ainamo, Professor Aalto University School of Economics Helena Yli-Renko, Assistant Professor University of Southern California Toni-Matti Karjalainen, Research Director Aalto University School of Economics ABSTRACT In this paper we studied entrepreneurial decision-making through the theoretical lenses of causation and effectuation. We found that entrepreneurs use different logic in the decisions regarding their core product in contrast to market related decisions. We took an ethnographic approach in this longitudinal case study and studied entrepreneurs’ decision-making regarding products and markets and compared them. We developed theory from ground-up and present propositions to be tested. We find that the entrepreneurs under study used causal logic in their decision-making in the product domain and effectual logic in the market domain. We propose that the entrepreneurs create entrepreneurial opportunities by accumulating human capital in the product domain using mainly a causal approach, and that they exploit these opportunities using mainly an effectual approach in the market domain, after becoming experts in their field. We find this to be true in contexts and fields where contextual instrumental expertise is of utmost importance, for example music or biotech and that our results can be generalized in fields with similar characteristics. Keywords: Effectuation, Causation, Expertise, Opportunity creation, Opportunity exploitation, Music industry INTRODUCTION Entrepreneurs create products and services with novelty value that fit the evolving needs of the users. On the one hand, entrepreneurs operate in a domain associated with their core product. On the other hand, they operate in a domain associated with market and with evolving user needs. In this paper, we study how entrepreneurs make decisions in these different knowledge domains and how the decision-making evolves over time. Knowledge characterizing the first (product) domain differs from the knowledge that characterizes the second (market) domain. Knowledge about technical development is standardized and coherent, organized around technology, and restricted by dominant designs and product technologies. In contrast to knowledge about technical advances, changes in cultural interpretations of appropriateness and value are produced through complex social interactions. Hence, knowledge about markets is less predictable and transient. The opportunity domain related to user and industry preferences is complex, socially constructed and time bound, thus highly unpredictable. We study opportunity creation taking place in the product domain and opportunity exploitation in the market domain by utilizing the theory of effectuation. Effectuation, as conceptualized by Sarasvathy (2001), is a theory about an alternative process of decision making in management literature, in comparison to the dominant one of causation. Where causation rests on logic of causation, effectuation rests on logic of control. Effectuation processes are posited as the fundamental decision units in explanations how economic artifacts such as firms, markets and economies come to be. Effectuation begins with a given set of causes consisting of mostly unalterable characteristics and circumstances of the decision maker, and the focus is on choosing among alternative (desirable) effects that can be produced with the given set of means, thereby eliminating the assumption of pre-existent goals. Both causation and effectuation are integral parts of human reasoning. They may even overlap and intertwine over different contexts of decisions and actions. In the literature on causation and effectuation, the latter is portrayed as a process of decision making that takes a set of means (e.g. traits, tastes, skills and networks) as given and focuses on selecting between possible effects of the process. According to Sarasvathy (2001), the effectuator’s given set of means include who I am, what I know and whom I know. At individual level this includes tastes, traits and abilities, knowledge corridors and social networks. At the firm level this means physical resources, human resources, and organizational resources. And at the level of economy this includes demographics, technology regimes and sociopolitical institutions. New ventures following the logic of effectuation open up new markets and industries, plugging into and exploiting social and technological contingencies that are difficult to plan for or to anticipate. As such, this process differs from causation, or what Sarasvathy (2001) considers the dominant process of decision-making in management literature. Causation takes a particular effect as given and focuses on ‘how to achieve a preset goal’ by selecting between means to create the effect. Further, effectuators are more likely to dive into marketing and selling activities and alliances, without traditional market research, such as surveys. Effectuators are also more likely to rely on short term informal planning in financial decisions, abandoning formal long term planning. They are more likely to build strong participatory cultures, instead of hierarchies. And are more likely to fail often and to manage these failures more effectively so that in the long run they are more likely to build larger and more successful firms. The recent research on effectuation has drawn a wide interest among researchers in the field of entrepreneurship (Baron, 2008; Chiles, Gupta, and Bluedord, 2008; Dew, 2009; Dew et al., 2009; Goel and Karri 2006; Harmeling, 2009; Read et al., 2009a, 2009b; Sarasvathy, 2004; Wiltbank et al., 2006; Fischer and Reuber, 2011), still only a few systematic empirical studies exist (e.g. Wiltbank et al., 2009; Chandler et al. 2011). In their recent review of literature on effectuation, Perry, Chandler and Markova (2011) developed a list of 29 articles where effectuation was the main topic. Out of these 29 articles, sixteen were conceptual, and 13 were empirical. The empirical studies included both field studies using primary (5) and secondary data (1) and experimental studies (7). Yet, none of the existing studies consider the context the venture operates in, in other words, the complexity of the product or the differences in decision-making regarding product and market domains and how that influences the use of effectual versus causal logic. Based on their review, Perry et al. (2011) suggest that effectuation research is still in its infancy. Aligned with the nascent state of effectuation theory, we have taken an ethnographic approach (Van Maanen, 1992). As the main anthropological methodology, ethnography has the advantage of offering some solutions to tackle the challenge of studying social and cultural process of entrepreneurship (Stewart, 1991). Yet it has been rarely applied in the recent decades of entrepreneurship research. Zahra and Wright (2011) make a call for more contextualized research in entrepreneurship where the role of the researcher is highly engaged, the scope of propositions is bounded and phenomenon is defined by context, i.e. meaning and boundaries often evolve as research progresses. Existing anthropological research in entrepreneurship demonstrates the widespread importance of, and problems in, the accumulation of knowledge and skills (Stewart, 1991). Still, very little is known about how the context influences entrepreneurial decision- making, identification and exploitation of opportunities, especially regarding high potential opportunities (Shane, 2012). The primary contribution of this study is identifying different logics used in market and product domains. More specifically, we identify logic of causation, when decisions are made about product features and aspects and opportunities are created. Further, we identify logic of effectuation, when decisions are made in how to commercialize the product, in other words, how to exploit these opportunities. We find that decision-making differs between these two domains, and that causal and effectual decision-making logics are both applied. The second contribution of our study is the understanding of how the context influences the identification and exploitation of opportunities (Shane, 2012). We study entrepreneurs who operate in a context where contextual, instrumental expertise is of utmost importance. Contextual expertise is built through extensive practice that is motivated by a larger instrumental objective and moderated by inherent enjoyment of the activity. (McPherson, 2005; Bloom, 1985) The third contribution of our study is applying the effectuation framework in the context of creative and cultural industries. Entrepreneurship in creative and cultural industries has rarely been studied in academia. In creative industries, the product is highly intangible, difficult to measure in content or success and ultimately a result of an artist’s imagination. In the next section we describe the methodology of this longitudinal ethnographic study. After that we present our findings, contributions to theory and the propositions arising from our findings. Concluding remarks, limitations and potential for future research are presented last. METHODOLOGY As the aim is to inductively describe and explain the decision-making regarding the product, decision-making regarding