Understanding Dynamics of Strategic Decision Making in Venture Creation: A Process Study of Effectuation and Causation

• Date: 01 December 2015
• Author: Petra Andries,Hans Berends,Elco Burg,Ute Stephan,Isabelle M.M.J. Reymen,Rene Mauer
• DOI: http://doi.org/10.1002/sej.1201
• Published date: 01 December 2015

UNDERSTANDING DYNAMICS OF STRATEGIC

DECISION MAKING IN VENTURE CREATION:

A PROCESS STUDY OF EFFECTUATION AND

CAUSATION

ISABELLE M.M.J. REYMEN1*, PETRA ANDRIES2,3, HANS BERENDS4,

RENE MAUER5, UTE STEPHAN6, and ELCO VAN BURG4

1Department of Industrial Engineering and Innovation Sciences, Eindhoven Uni-

versity of Technology, Eindhoven, The Netherlands

2Faculty of Economics and Business Administration, Department of Innovation,

Entrepreneurship, and Service Management, Ghent University, Ghent, Belgium

3Faculty of Economics and Business, Department of Managerial Economics,

Strategy and Innovation, KU Leuven, Leuven, Belgium

4Faculty of Economics and Business Administration, VU University Amsterdam,

Amsterdam, The Netherlands

5ESCP Europe Business School, Entrepreneurship and Innovation, Berlin,

Germany

6Aston Business School, Economics & Strategy Group, Aston University, Bir-

mingham, United Kingdom

This study draws upon effectuation and causation as examples of planning-based and flexible

decision-making logics and investigates dynamics in the use of both logics. The study applies

a longitudinal process research approach to investigate strategic decision making in new

venture creation over time. Combining qualitative and quantitative methods, we analyze 385

decision events across nine technology-based ventures. Our observations suggest a hybrid

perspective on strategic decision making, demonstrating how effectuation and causation logics

are combined and how entrepreneurs’ emphasis on these logics shifts and re-shifts over time.

We induce a dynamic model that extends the literatureon strategic decision making in venture

creation. Copyright © 2015 Strategic Management Society.

INTRODUCTION

The process of new venture creation is characterized

by the need to decide and take action in the face of

uncertainty (e.g., Alvarez and Barney, 2005;

McMullen and Shepherd, 2006; Sarasvathy, 2001),

and this is particularly the case for technology-based

ventures. The nature and outcome of their technol-

ogy development activities, as well as market selec-

tion and commercialization processes, are not just

risky but inherently unpredictable and fraught with

‘ambiguity’ or ‘Knightian uncertainty’ (Chesbrough,

2003; Steensma et al., 2000; Utterback, 1987).

Alvarez and Barney (2005) and Alvarez (2007)

explain that this uncertainty makes it difficult for

the entrepreneur to know how to organize the emerg-

ing venture (such as deciding how to assign the

residual profits of an opportunity and making deci-

sions about acquiring and coordinating resources).

They argue that we need a better understanding

of the decision-making tools entrepreneurs use to

Keywords: decision making; effectuation; new venture cre-

ation; uncertainty; process research

*Correspondence to: Isabelle M.M.J. Reymen, Department of

Industrial Engineering and Innovation Sciences, Eindhoven

University of Technology, ITEM, CNT 0.06, Rondom 70, 5612

AP Eindhoven, The Netherlands. E-mail: i.m.m.j.reymen@

tue.nl

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Strategic Entrepreneurship Journal

Copyright © 2015 Strategic Management Society

Strat. Entrepreneurship J., 9: 351–379 (2015)

Published online 16 July 2015 in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1201

organize ventures in such uncertain contexts. We

focus on this important mechanism, i.e., entrepre-

neurial decision-making logics, and contribute more

broadly to understanding the role of strategic deci-

sion making in the venture creation process under

conditions of uncertainty.

The entrepreneurship literature describes several

approaches to decision making in the face of uncer-

tainty, including approaches that stress planning and

control (e.g., Brinckmann, Grichnik, and Kapsa,

2010; Delmar and Shane, 2003; Miller and Cardinal,

1994) and approaches that emphasize more flexible,

adaptive, and collaborative decision making, such as

improvisation (e.g., Baker, Miner,and Eesley, 2003),

bricolage (Baker and Nelson, 2005), and effectua-

tion (Sarasvathy, 2001). However, planning-based

approaches appear to have limited success in con-

texts characterized by true uncertainty, as plans

based on past predictions often no longer accurately

reflect the unfolding course of events in such con-

texts (Alvarez and Parker, 2009; Brinckmann et al.,

2010; Chwolka and Raith, 2012; Dencker, Gruber,

and Shah, 2009; Gruber, 2007). In contrast, more

flexible, experimental, and adaptive approaches

appear to fit better with uncertain decision-making

contexts (Alvarez and Parker, 2009; Andries,

Debackere, and Van Looy, 2013). It has been sug-

gested that venture creation benefits from a

planning-based approach in the absence of uncer-

tainty, while collaborative, flexible decision making

is crucial for venture creation under uncertainty

(Alvarez and Barney, 2005; Sarasvathy 2001). In

uncertain contexts, decision making needs to be

adaptive over time and responsive to the change and

instability inherent in such contexts. So far, however,

no research has explored how decision-making

logics are used over time, how they may shift over

the course of the venture creation process, and what

specific conditions might trigger such shifts (e.g.,

Alvarez, Barney, and Anderson, 2013; Read and

Dolmans, 2012). The current study addresses this

gap by shedding light on whether, how, and why

decision-making logics might be alternated or com-

bined (i.e., adapted) over time.

As we have discussed, several planning-based and

flexible decision-making logics exist. This study

specifically focuses on causation and effectuation

(Sarasvathy, 2001) as examples of a planning and a

flexible decision-making logic. Causation and effec-

tuation have gained increasing interest in the strate-

gic entrepreneurship literature, have been articulated

in relation to each other, and imply a process focus.

An effectual decision-making logic, in contrast to a

causal one, describes how entrepreneurs actively

engage uncertainty by being responsive to informa-

tion and feedback and by leveraging existing means

and stakeholder contacts that may change over time

(Read, Song, and Smit, 2009b; Sarasvathy, 2001;

Wiltbank et al., 2006). As is the case for planning-

based and flexible decision-making logics in

general, our understanding of how effectual and

causal decision-making logics evolve over time is

still underdeveloped, as is our knowledge of what

drives the use of either logic at a given time (Arend,

Sarooghi, and Burkemper, forthcoming).

A process approach is needed for a more compre-

hensive explanation of entrepreneurial decision

making in venture creation. Not only do strategic

entrepreneurial decisions shape a venture over time,

but also the conditions that may impact decision

making evolve during the venture creation process.

As decision-making logics are context dependent

(Alvarez and Barney, 2005; 2007) and the

context—in particular the level and type of

uncertainty—changes over time, entrepreneurs are

likely to shift from one logic to another or to

combine different logics (Read and Sarasvathy,

2005). Restricting the explanation of the drivers of

decision-making logics to initial conditions obscures

how entrepreneurs act upon such conditions, react to

perceived changes, and shape their own processes

(e.g., McMullen and Dimov, 2013). A process

approach also helps to move beyond the discussion

of causation and effectuation as competing

approaches to decision making. It can shed light on

whether, how, and why decision-making logics

might be alternated or combined, thereby also

increasing the understanding of the relationship

between decision-making logics in the venture cre-

ation process.

This study adds a longitudinal process approach

(Langley, 1999) to the body of research on entrepre-

neurial strategic decision making under uncertainty.

In particular, it addresses the following questions:

(1) How does the use of effectual and causal decision

making evolve during the venture creation process?

and (2) What may drive shifts in the use of effectual

and causal decision making? To answer these ques-

tions, we combine qualitative and quantitative

methods to analyze 385 decision events across nine

technology-based ventures.

Collectively, our findings advance the theoretical

understanding of strategic decision making in

venture creation processes and add to the literature

I.M.M.J. Reymen et al.

Copyright © 2015 Strategic Management Society

DOI: 10.1002/sej

Strat. Entrepreneurship J.,9: 351–379 (2015)

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