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Effectuation, hmm What is it?

17 december 2013 - Henk van der Leest

Look at the development of a group an organization or institutional development of for that matter a country rebuilding as something more organic than structured and the following may be of interest. It is probably more a matter of evolving than planned development.

Effectuation, what is it?

Look at the development of a group an organization or institutional development of for that matter a country rebuilding as something more organic than structured and the following may be of interest.  

Succes is probably more a matter of evolving than of planned development.

Originating from analyzing successful business effectuation was formulated.  

The difference between an Effectual and Causal approach in entrepreneurial development may have a wider impact than we can currently imagine. Effectuation appeals more to those who are inclined to pragmatic approaches. This is contrary to those with a more academic approach who are inclined to causation and the pragmatic entrepreneur. With that it immediately underlines the difference between those who fly and those who intent to do so. As an example consider the difference between the Wright Brothers and Samuel Piermont Langley. The latter even though heavily financed failed to realize a manned flight. While the Wright Brothers did, as we all know today. They did it step by step with limited means. With only what they had, adapting their insights to their immediate reality. Using an effectual approach the Wright Brothers became successful. An approach practiced, as we know now, by almost all successful entrepreneurs large and small.  

This, step by step, pragmatic approach that starts with what is available, builds on possibilities in the direct vicinity, that links its environment and has very high level of ownership is now popular in SME development. It is now considered a proven approach. It might be a valuable alternative to enhance community development. By doing so steering clear from dependency and over-demanding expectations, allowing ownership and progress. Moreover, allowing business development to support the national development amongst others in water and sanitation. Meaning small entrepreneurial efforts, by SME and Government become controllable. It is thus adjustable and offers direct results with small steps, enhances self-realisation within the available means.  

 

What differentiates Effectuation from Causation?

 

Causation: The focus is on achieving the desired goal through a specific set of means. Causation invokes search and select tactics and underlies most good management theories. It aims at a solution considered the best prior to the journey. In terms of community participation it would entail that participatory process is inclined to manoeuvre itself towards this preset outcome. Such a preset goal does not allow deviation from the path set-out, deviations are risky. They form a threat to the results.  

Effectuation: The focus is on using a set of evolving means to achieve new and different goals. Effectuation evokes creative and transformative solutions, often more in line with lateral creativity. So effectuation is the name for the heuristics used by expert entrepreneurs in new venture creation.  

Effectuation however does not render research and models useless, but will put them in a more appropriate relation to the purpose of a venture and of life in general. Not the theoretical frame is leading, but the reality in the here and now. Models can easily be manipulated to fit the expected, while reality comes as it is. So the road is of greater importance than the outcome, and reality while en route offers opportunities that can now be taken on board more easily.  

Contrary to common believe business ideas come from:

  • Personal satisfaction of dissatisfaction
  • Driven by personal values
  • Prior vocation or outgrown hobbies
  • Ideas thrust on by others
  • Very small start then growth
  • Customer generated ideas

 

Relevancy for development agencies or change management for that matter.  

A different approach may lead to different outcomes. Thus I wonder based on experience in this arena: Water and Sanitation, water management and waste water treatment is for example big business in The Netherlands and we export such knowledge and impose our views in development projects. This knowledge is driven by an historical water management need which has been institutionalised since the year 1182.  

When I worked in developing countries it was often the donor or its representative who identified water and sanitations needs in a way that would fit their often more causal approach. Even the community participatory approaches often were based on a pre-set or anticipated best outcome. Rendering ownership often to a small group and almost always involving a high demand of means for actual implementation. One might almost read into it a ‘big is beautiful’ syndrome. Who has locus of control in these environments?  

That hard push of development aid costs a lot of energy for the recipient. Energy that now cannot be used to further self-realization. National and SME development is self-realisation. That must come from within and I am puzzled why countries with true and self proclaimed water and sanitation issues hardly develop this as their expertise. Getting their experience translated into products ready as an export product for their own entrepreneurs. What is the reason for this and what role does development aid have in this?  

So let us try something new. Participation based on effectuation can more appropriately follow a different path, of a more evolving approach, pragmatic, connected with the acceptance of failure, but step by step building up strength from within. Now we will get what we can call locust of control. That means the new situations will be more easily adapted to. The developments will be closer to the available means and will deliver benefits for growth. Whereas pushed it will claim all means to a single purpose, stalling any possible growth, ignoring deviations, new opportunities.  

An effectual approach will be less prescriptive, more means to an end, accepting failure, allowing adjustments; and by its nature be more diverse: Multiple small scale results with more variation in outcome and more agile; thus quicker to adapt and a more effective learning process enhancing self-realization. Thus closer to the true intentions of participation.  

Thus could it also be a consideration for a participating society in the Netherlands... let it evolve!  

 

For example causal versus effectual reasoning:

When you are means driven you do not wait for a perfect opportunity to come along. You do not waste a perfect opportunity to get all the means perfectly in order. You work from your strength and overcome your weakness, thus gaining self-realisation and subsequent development of know-how. You increase the conditions for success, the probability for surprises and innovation. Even failures become learning moments from which you can grow. You are more agile and less dependent, you are your own director. If self-realisation is the purpose what then would be the best approach?  

 

The five principles

The effectuation, canvas of the business model has 5 practical principles, that all means can be turned into support for the development and working through approaches for projects of national, institutional but also of entrepreneurial development. It allows participants to walk at their own pace, use their own means, go the route for their own sake.  

Bird-in-hand: Start with your own available means.  

When expert entrepreneurs set out to build a new venture, they start with their own available means: who I am, what do I know, and whom do I know, what do we have? Then, the entrepreneurs imagine possibilities that originate from these means. That could also entail that the use of and revival of old traditional knowledge as a means or as a point of departure.  

Affordable loss (Work for the upside, be prepared for the downside)  

You can test and research something, yet you could also do it. It might costs less and you will learn more. Entrepreneurs understand how much they can lose at each step, this is to them a calculated loss. Affordable loss. So they also aim at goals and opportunities that still have an upside even if all goes wrong. “A loser does not know what he will do if he loses, but he talks about what he will do if he wins, and a winner does not talk about what he will do when he wins, but he knows what he will do if he losses. “ Eric Berne. So, what can I invest or afford to put at risk. That is also the boundary for the financial risks I take. It is a bootstrapping principle.  

Crazy Quilt, the patchwork principle: Partnerships are the key. Yet he who chooses wisely is often able to sustain long standing relations.  

Expert entrepreneurs build partnerships with self-selecting stakeholders. By obtaining pre-commitments from these key partners early on in the process these experts reduce uncertainty and co-create with its interested participants. Each stakeholder brings, thrives and invests; there is a chain of commitment of equality between partners. That takes skills and thorough thinking of with whom to team up. This is not a technocratic or rational analysis only but goes deeper, it evaluates motivation. ‘Why’ is a more significant weighing factor than ‘what’ in selecting your partners.  

The lemonade principle.  

Embrace the unpredictable en use the surprises. The exceptional entrepreneur will invite the surprise factor. Instead of making “what-if” scenarios to deal with worst-case scenarios, experts interpret “bad” news and surprises as potential clues to create new markets. He is less stuck to the outcome, but is able to enjoy the road as he proceeds, and allows contingency to shape future. Traditionally you set goals, plan extensively. There are merits in this, however, to what extent. Not being able to appropriate the accidental events could make you miss out on great development opportunities.  

The fifth is Pilot in the plane.  

Whatever happens you read the dashboard yourselves and steer based on that. And you do not steer on what is predicted. Expert entrepreneurs control the plane whilst in flight. Yet you are not alone, you will have to give people trust and responsibilities, and the rest will follow. A planning is good for some time; a solid partner is good for ever. In both, you cannot predict the future; you can control it by being in the present, occupied with the right things at the right time. To generate the desired future is hard work; we speak of self-efficacy. While a causal approach leads to predicted outcomes, effectuation leads to novel outcomes.  

 

In conclusion

It is a plea for smaller projects, fully in control of and driven by the owners within their means. But also more open, allowing new developments and novelties, expertise to be owned at the right level. Allowing expertise to develop en be multiplied contrary to have outsiders in development work still pushing their causal expertise as a one way instrument. What happened to the Netherlands, where the water sector became a leading industry worldwide, can also happen elsewhere if allowed time, space and an opportunity to gain the locus of control.  

note  

Many books may be of value here, a nice book for SME development is Effectual Entrepreneurship from Stuart Reed. This book and SME development experiences with University of The Hague, and of Rotterdam have been the main input to this brief introduction.  

Please feel free to check-out (dutch) effectuation animation http://www.youtube.com/watch?v=FCOQUbWJPB8