Effectuation- The Science of Entrepreneurship

Who is an Entrepreneur? An entrepreneur means different things to different people. To an economist, it is a person that combines the factor of production which are land, labour, capital and organisation. The organisation is a coordinating factor for the first three elements of production that ensures that the final value of the product came out to be higher than the initial value of all the factors combined. To achieve an increase in worth, we must employ creativity and innovation all in the face of uncertainty.



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Entrepreneurs bear a calculated risk while assuming the reward which could be monetary or psychological. To a psychologist, an Entrepreneur is driven by the hunger to conquer his environment to achieve financial independence by venturing into experimentation to provide value for needs unattended to within the vicinity.

To a businessman, an entrepreneur could be an arch rival while to some other businessperson an entrepreneur could be an ally who he could be relying on either to supply his raw material or to help in the distribution of his final product to the target customers. In all, no single definition is accepted by all economist or that is applicable in every economy.

Amongst all these different views, it is easy to isolate the significant attributes of an entrepreneur which includes:

• Taking initiative
• Harnessing social and economic mechanism and innovatively organising them with the help of skill required for the conversion to the final product and or services, and this product/ services must have value both to the targeted customers and the entrepreneur himself
• Acceptance of the risk involved (calculated risk) knowing fully well there could be probability of failure
• Accepting the rewards which could be monetary or psychological

Due to the uncertain environment in which the entrepreneur operates, the scarcity of available resources to work it. And also given that he is constrained to operate within the window of opportunity. He invariably will at some time effectuate, must be cognitively adaptable (this is the ability to juggle through different concepts simultaneously, with the intention to analysing them in tune with changes within their environment) and be able to learn from their mistakes.

Entrepreneurs and others who create faces three different types of uncertainties:

• Knightian Uncertainty (this involves risk where the outcome is not certain but enough information is available to establish the odds accurately and the second part is uncertainty has to do with situations where we have scanty information so that we cannot possibly generate the odds with the information at hand)
• Goal ambiguity (there is no preference or any scale to measure it )
• Isotropy (It is not clear which elements of the environment to take cognisance of or which to ignore)

It would be difficult for someone trying to set a boutique in a college environment to ascertain the taste of the people in the vicinity. This raises many uncertainties due to the scarcity of information available to him to work with. This risk could be in the form of establishing the number of likely customers who are willing and also with the ability to pay for the goods or services to be offered. In such a scenario it would be difficult to establish the customers’ needs and what would induce them to pay.

It is important to note that the customer pays a certain price according to the value he attaches to the product. Even when a customer has placed a specific value to the product, he must also have the willingness to complete the transaction by paying a price he deems commensurate to the value of the product and or service.

Peter Drucker, a management economist once said that marketing aims to make selling superfluous. This unnecessary selling he went on to explain to mean that the product/service must match the desires of the targeted consumer, match his purchasing power while at the same time must result in a consumer willing to pay. The above has lots of variables in that there is no way one can forecast to a certainty the behaviour of a customer and even when you can project to some level; it could still be subject to some external factors that can change resulting to the change in the behaviour of the customer.

This sudden shift could be in the change of weather condition such as seen during a transition from hot season to cold season which would result in a change of light clothing to heavy clothing. In this country with the incessant strike action by the lecturers due to poor learning condition and remuneration. Such business targeting the presence of the student population around the school cannot establish to certainty when the students will be in session and may lose money or suffer during the duration of the strike.

In this kind of scenario, the entrepreneur will have to rely on effectuation to deal with the ambiguous goal presented by the environment. It is imperative to differentiate the type of problem an entrepreneur may encounter during his cause of planning his business. There is the casual problem, and there is the effectual problem. Casual problems are problems hinged on the decision while effectual problems are problems hinged on design.

Casual approach is often adopted by managers when the future can be predicted to some reasonable level of certainty, also where there are clear-cut goals and predictable outcome and when the environment has no direct relationship to one's actions.

The casual actor considers the outcome he wants to actualise and questions what has to be done to achieve the result or effect. The effectuator begins with the means available to him and comes up with the possible use he can put them to produce the required outcome.

There are diverse opportunities in our environment in which one can tap into with the hope of exploiting such opportunities to create a particular product or service targeted towards a specific customer bloc. Often, this opportunity could be in the form of a market gap left unsaturated or unsatisfied. Discovering such opportunities is not enough given the fact that the means to actualise it may not be there.

There must be a way out, and this has been made easy by the concept of effectuation which advocates reliance on the means available to us to actualise a goal rather than looking at processes and what must be done to get at the same effect or result.

This means can then be used to manufacture opportunities within our environment, culture and value system. This thought process is possible when one looks inwards as to fully discover one's area of strength and abilities coupled with ones available technical and socialisation skill.When it comes to entrepreneurship, persistence, marketing and management capabilities is of the essence.

It is on this premise that the effectual process has its core because it has to do so much with attributes one has full control of rather than procedures and means out of the entrepreneurs’ control. When it comes to marketing a product, it must commence from the people we are sure that is willing to buy whenever they perceive the value they want and here takes care of ‘’who we know problem’’.

Effectuation focuses and harnesses ones intellectual capital, human capital and social capital to bring out the type of entrepreneur that is best suited to the subject under question. These abilities as mentioned earlier encompass what we know, who we know, which is a direct determinant of the type of business one can thrive on.




For example, let us say you are to entertain a guest of five people this new year, and in your home. You can decide to have a menu of 4 different dishes to prepare and in that case, all the chef need to do is to seek for the ingredients either from the stock in the house or buy it from the market. This first scenario is the casual approach because it is only concerned with the effect to be created which is to prepare the meal given the menu already preconceived. The second scenario would be for the chef to check the stock available and come up with the different dishes and utensils that suits the preparation of the meals. The check on the possible ingredients is an effectual approach in the sense that it is concerned majorly with the means available (stock of ingredients) to achieve the end.

In summary, effectuation is a process that starts with knowing our abilities, our resources which include who we are, what we know and who we know ) geared towards selecting the best possible outcome.

REFERENCES:

1. Hisrich R.D.Peters M.P. and Shepherd D.A. (2010) ''Entrepreneurship''. McGraw Hill International Edition.Eight edition.

2. Kotler P. and Keller K.L.(2012). ''Marketing Management''. Perason Education, Inc, Publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey.

3. Sarasvathy S.D. ''EFFECTUATION: Elements Of Entrepreneurial Expertise (2008).Edward Elgar Publishing Limited, Glensunda House Montpellier Parade Cheltenham Glo GL50 IUA UK.

4. Entreprenuers as Risk Takers

Further Reading: visit http://www.effectuation.org/