Effectuation: Concept and what it is ?

Effectuation is an idea with a sense of purpose – a desire to improve the state of the world and the lives of individuals by enabling the creation of firms, products, markets, services, and ideas.

Effectuation is a process theory that explains the process that entrepreneurs use to create new ventures. When looking at ways to create value for a business, entrepreneurs have the choice between ways of thinking: causal (or predictive) thinking and effectual thinking (or effectuation).

As an example, a chef using causal logic decides to cook a particular meal recipe and then gathers the requisite ingredients to do so. A chef using effectuation logic looks in the fridge to see what ingredients are available, then improvises a meal using what is there.

Causation:

The current approach taught in management.

The focus is on achieving a desired goal through a specific set of given means. Causation invokes search and select tactics and under-lies most good management theories. Causal thinkers believe that “If I can predict the future, I can control it.”

Effectuation:

The new approach to solve world challenges.

The focus is on using a set of evolving means to achieve new and different goals. Effectuation evokes creative and transformative tactics. Effectual logic is the name given to heuristics used by expert entrepreneurs in new venture creation. Effectual thinkers believe that “If I can control the future, I do not need to predict it.”

The five principles of effectual logic:

1. Bird-in-hand principle—start with your means.

2. Affordable-loss principle—focus on the downside risk.

3. Lemonade principle—leverage contingencies.

4. Patchwork-quilt principle—form partnerships.

5. Pilot-in-the-plane principle—control the future.

Click to explore more:

https://www.effectuation.org/?page_id=207

https://news.virginia.edu/content/qa-darden-professor-cracks-code-how-great-entrepreneurs-think

Source: the above concept is curated from multiple sources.

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