Effectuation & Causation Approaches and their effect on Business Performance: An analysis of Business Plans

2016

Jos Lennips

This paper is about the influence of Effectuation and Causation, two entrepreneurial strategies, on the performance of companies. These terms were first coined by Sarasvathy in 2001 and in this research empirically tested on the survival of companies. Causation processes take a particular effect as given and focus on selecting between means to create that effect. Effectuation processes take a set of means as given and focus on selecting between possible effects that can be created with that set of means. According to the literature it is not yet known whether one approach is the preferable approach over the other in order to have a bigger chance of survival for a company, some literature hints towards effectuation as the most preferable but empirical prove does not yet exist. The same goes for a company that has survived an early phase of development. Literature suggests that causation is the better option, but empirical evidence is absent. Therefore, these two claims were tested after data on 382 business plans was gathered and coded. The findings do not give a clear and distinctive answer, but, Causation has the (slightly) better outcomes. This study poses a contribution to literature on causation and effectuation as concepts of early entrepreneurial strategy. It has made use of an extensive coding scheme and a rich database of coded business plans. However, further research on this subject is needed to validate the measures that were created, to check whether the results hold for bigger and different samples, and whether the same results come up if a different way of gathering data, not through analysing business plans, is used.

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