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Samenvatting GSOC
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Exam grade 9.3. My summary of lectures and articles.
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Week 1LECTURE 1. BUSINESS PLANNING VS. EFFECTUATION
Why is a business plan studied?
- Universities worldwide teach students the importance of business plans (BP).
- BP competitions are a key instrument to facilitate entrepreneurship and regional development
across the globe.
- Professional investors require nascent entrepreneurs to write a BP before they will consider an
investment.
Article 1. Brinckmann: Should entrepreneurs plan or just storm the castle
The paper analyzes the general relationship between business planning and performance. Plus the
paper analyzes specific planning-contexts where a planning-based approach creates better
performance. To this end, the paper draws on three moderating factors:
a) the development stage of the firm (firm age),
b) the form of business planning undertaken
c) the cultural context in which the planning–performance relationship occurs (a country’s level of
uncertainty avoidance, UA)
There are two views (often due to the effect of contextual factors):
1. Planning school = systematic, prediction-oriented and formal planning leads to superior venture
performance because resources are used more effectively, the decision speed is increased and
flexible actuation is supported.
- planning generally improves effectiveness of human action and facilitates goals achievement.
2. Learning school = focus on learning, strategic flexibility and controlling resources, especially when
facing high degrees of uncertainty
- incremental approach where effective strategies are emergent
- BP prevents dedicating time to activities such as acquiring resources or organizational development.
BP can lead to cognitive rigidities, organizational inertia, and limited strategic flexibility
What influences the BP-performance relation (moderators)
1. Firm Age
More important for mature firms i.e. firms with longer life, because they are more familiar with the
market (less uncertainty = need for flexibility). This makes planning for them more predictable, and
better.
2. Uncertainty avoidance
,The BP is less effective in cultures with higher uncertainty avoidance. If something unexpected
happens, they ignore it because it is not in their initial plan. Managers over-commit themselves to
the plan, leading to lower performance due to the limited strategic flexibility (no adaption).
3. BP outcome vs. process
Formal business plans are often created to respond to internal and external pressure of commitment
and legitimization rather than to serve as an instrument to directly improve performance.
- This is not significant proven, stays fuzzy, h3 rejected.
What is more important, the process or the outcome.
Conclusion
• BP is a value-creating activity (despite the required resources and small firms’ resource
constraints). However, BP is not equally beneficial under all circumstances.
• Findings challenge conventional entrepreneurship wisdom that BP is particular important for
new firms: high uncertainty and missing information reduce the positive effect of BP on
performance in new firms.
• Higher UA reduces the benefits of BP.
The overall conclusion supports the first theory but the moderators show evidence for the second
perspective.
- There is a positive relationship between BP and performance. But this does not mean that bp
explains performance. The meta-analysis cannot examine causality.
Implications for the firm
- Basic BP activities sufficient in the firm’s initial years.
Allocate resources to other activities enabling information gathering, uncertainty reduction, and
learning. + Long pre-planning activities detached from market interaction and feedback appear
detrimental.
- Mental preparation and willingness to adjust BPs. Close execution of BP not beneficial per se.
,Article 2. Sarasvathy: causation and effectuation, toward a theoretical shift from economic
inevitability to entrepreneurial contingency
So, planning is good, BUT…
- How do we make pricing decisions when the market for the product/service does not yet
exist (i.e., no demand function given )?
- How do we make pricing decisions when the firm does not yet exist (i.e., no revenue / cost
functions given )?
- How do we hire someone for an organization that does not yet exist?
- How do we even get people to apply to such an organization whose existence hinges upon
acquiring able employees (e.g., a knowledge-intensive firm)?
- How do we value firms in an industry that did not exist some years ago and is barely forming
at the moment (emerging industries)?
- How do we create a capitalist economy from a formerly communist economy?
So, what can you do then?
Causation = the causator takes a particular effect (result) as given and focuses on selecting between
means to create that effect.
- I want to pass this course, what do I need to do now to get there.
- Selecting between given means to achieve a pre-determined goal.
- Managerial thinking, predict the future.
Effectuation = the effectuator takes a set of means as given and focuses on selecting between
possible effects that can be created with that set of means.
- What for resources do I have and can I do with them.
- Imaging a possible new end using a given set of means.
- Entrepreneurial thinking, not afraid of failure, exploration.
Basic principles of effectuation
1. Bird in hand / given means
= expert entrepreneurs seeking to build a new venture start with their given means:
- Who am I?
- What do I know?
- Whom do I know?
Using a combination of these means, entrepreneurs start to imagine possibilities and take action.
The goals result from the entrepreneur’s imaginations/aspirations and interactions during the
process.
2. Affordable loss
= entrepreneurs decide what they are willing to lose rather than what they expect to make. Thus,
there is no focus on maximizing risks.
- Their dominant thinking is: what are the losses and can I afford those.
- The affordable loss does not depend on the venture, but on the person.
- By this, entrepreneurs stop depending on prediction and focus on cultivating opportunities with
perceived low failure costs that generate future options.
, - New venture opportunities are difficult to value upfront, while time, money, and other resources
are quantifiable and controllable.
3. Lemonade
= if you come across lemons, make lemonade.
- Dealing effectively with changing circumstances.
- Expert entrepreneurs learn to work with surprises and take advantage of them.
- In most BPs, surprises are bad (the worst-case scenario). But because entrepreneurs do not tie their
idea to any theorized or preconceived “market”, surprises can lead to valuable opportunities.
4. Crazy quilt
= focus on building partnerships rather than beating competitors.
- In the absence of a predetermined market, competitive analyses have little value. Instead,
entrepreneurs take the product to the nearest potential customer.
- Some of the interactions lead to commitments and self-selections into the new-venture creation
process.
It is important to be aware of your means, but it is even more important to go out and test if your
idea works, get feedback from customers and other key stakeholders. Then the feedback should be
implemented and the quilt gets more ‘crazy’ (changed). It is a loop.
- The expanding network of strategic partnerships determines which market/s the firm ends up
entering or creating.
- Related to coopetition and co-creation.
5. Pilot in the plane
= entrepreneurs should focus on the controllable aspects in their environment.
To the extent entrepreneurs can control the future, they don’t need to predict it. The future is
shaped by human actions.
Thus, it is much more useful to understand and work with people who are engaged in the actions
that bring it into existence.
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