does expertise drive the preference for effectuation over causation? - a cross-nation study into the role of cognitive styles, national culture and education
Martin Stienstra is a PhD Student in the University of Twente’s department for Entrepreneurship, Strategy & Innovation Management (NIKOS-ESIM). His supervisor is professor Aard Groen from the faculty of Behavioural Management and Social Sciences.
he stream of literature on exploitation and exploration of entrepreneurial opportunities while creating a new venture has been given momentum by Sarasvathy when she defined effectuation. Effectuation is seen as one of the emergent strategy theoretical perspectives. Effectuation focusses on new venture creation and decision-making processes in where expert entrepreneurs follow different decision-making principles than novice entrepreneurs. Novice entrepreneurs use a more traditional planned approach in where goals are set, financial resources are sought to meet these goals, competitive analysis is important, and predictions are made based on past experiences, also to avoid contingencies. Sarasvathy calls this approach causation. Effectuation on the other hand focuses on means available to the entrepreneur to create a market together with willful agents who pre-commit to the new venture. Prediction is not useful and therefore it makes more sense to control the means available while not lose more than what can be afforded. In doing so, contingencies should be embraced.
However, over the years, critique has risen by several scholars towards effectuation. These scholars feel that it is too early to call effectuation a theory, or even a distinct framework from similar approaches. Other parts of the critique focus on insufficient empirical testing, insufficient critical analysis, focal agents which do not exist in the actual world, an under-specification of boundary conditions, to mention a view. Some scholars agree with Sarasvathy that effectuation in essence is a cognitive framework but do ask for a more focused insight into difference between the cognition domain and effectuation. Last, and in line with the points addressed earlier on; the original think aloud protocol analysis research has been executed in the United States with expert entrepreneurs. One could argue that this setting might not be completely the same in relation to e.g. developing countries, or even developed countries other than the United States. We used the insights we got from our research to answer the points of critique towards effectuation with the central research question in mind: to what extent do cognition, national culture and education influence the choice between effectuation and causation in new venture creation?? To answer this central research question, we split up the research into four studies.
Study 1. In this study we wanted to test a couple of assumptions. First of all, if students would prefer causation over effectuation, as found in previous research. Second, we checked if the study background and knowledge regarding entrepreneurship by means of following entrepreneurial courses (and with that, knowledge of effectuation or not) would influence a potential preference for effectuation or causation. Third, we checked if the cognitive style influenced potential preferences and fourth, if the students indeed were inclined to start a venture, by researching self-efficacy and entrepreneurial intent. What we found was that effectuation seems to be a very difficult concept to comprehend by students. Causation is better understood, and showed to have significant relations with the cognitive style of students, next to self-efficacy, but not with entrepreneurial intent. Study background, entrepreneurial courses followed (including knowledge of effectuation) and also other control variables did not have a significant relation with causation. Our conclusion was that effectuation is difficult to grasp by students but causation was a concept which was comprehensible, among others due to the cognitive style of students. This has to be taken into consideration in researching effectuation amongst students, but is also good to know for practitioners, especially those teaching effectuation.
Study 2. In order to get insight in what drives novices entrepreneurs and whether or not cognitive styles prevailed over or could be paired with national culture in determining if, and if so, which decision making preferences could be identified, we used validated scales to measure the relation between effectuation, cognition and culture. We executed our research in three countries (Mexico, Germany and the Netherlands) and asked novice entrepreneurs to participate. We split our study into two sub-studies. In sub-study one, we analysed the overall influence of cognition on the preference for effectuation or causation. We found that there are significant relations found between culture and the usage of effectuation and causation. We also found a significant relation between the cognitive style of entrepreneurs with a preference for causation, but not for effectuation. However, from our findings in study one it was not immediately clear how exactly the manifestation of these constructs could be seen if we would isolate them in a cultural context. We therefore also analysed the data by comparing 2 groups of entrepreneurs (culturally tight vs culturally loose).
For effectuation, this time no significant relationships were found with both the cognitive style as well as culture. However, for causation we found that there is a significant relationship with the cognitive style of the entrepreneur which is moderated by culture. The contribution of this study is that with the fact that we analysed a dataset in different ways, we showed that different results could be found and that it is therefore important to argue why a certain analysis is chosen. A second contribution is that the Alsos et al. (2014) scale can be used in an international setting, something which was not tested to our best knowledge.
Study 3. We researched novice entrepreneurs again but this time we chose a different method, namely the one as used by Sarasvathy which lead to her seminal paper: the think aloud method. We chose two countries with contrasting cultural backgrounds: the Netherlands and Vietnam. This time, we found that overall, both groups of entrepreneurs had a preference for causation, but significantly more in Vietnam than in the Netherlands. The Dutch used significantly more effectuation than Vietnamese entrepreneurs. The differences between sub-constructs (all but one) differed significantly as well. Also this time, we could see the influence of national culture played a role but definitely also the fact that novice entrepreneurs made up our sample made that there was a preference for causation over effectuation, in line with findings by other scholars.
Study 4: we wanted to see if expert entrepreneurs in other countries would show similar or different patterns regarding a preference for effectuation or causation than those researched by Sarasvathy in the United States. In order to do so we chose to study expert entrepreneurs in two different countries. In this study, we also looked at the influence of national culture. Our sample consisted of expert entrepreneurs from the Netherlands and Malaysia. We made use of the think aloud method with concurrent protocol analysis. Dutch entrepreneurs more often make use of effectuation, and also in the majority of their decisions. Malaysian entrepreneurs do not show a strong preference for the use of one over the other. We conclude that in countries similar in culture to the United States there is a clear preference from expert entrepreneurs for effectuation while in countries which are culturally different it is less apparent that experts value effectuation over causation.
Overall, we find that entrepreneurs from countries with a similar culture as the United States of America have a preference for an effectual approach while entrepreneurs from countries which are culturally different prefer a causal approach. This effect is not that strong among expert entrepreneurs, but in particular among novice entrepreneurs. What should not be underestimated is the cognitive style of entrepreneurs, since that also influences the choice for effectuation or causation. In countries which have a different culture than that of the United States, culture is shown to have a moderator effect on the relation between a cognitive style which leads to a preference for causation. Our study contributes in a couple of ways to existing literature. The body of empirical findings has been extended with four different empirical studies. We show that national culture has an influence on the preference for effectuation or causation, especially among novice entrepreneurs. Expert entrepreneurs are less affected by national culture. Cognition plays an important role as well, especially among novice entrepreneurs but also among students. Students seem to have difficulties in understanding effectuation. This could also have to do with the cognitive style of the students which seems to steer students more towards causation. A final contribution is that we found that a new (validated) scale to measure effectuation (Alsos et al.) also works in an international setting. For practitioners, such as teachers at universities these findings can help in identifying how a sub-set of students can be taught effectuation in a different way for them to have a better understanding of the construct.