Effectuation is a concept in entrepreneurship that emphasizes transforming uncertainty into opportunity by leveraging existing resources rather than relying on predictive planning. Developed by Professor Saras Sarasvathy at the University of Virginia in the late 1990s, effectuation arose from her studies of expert entrepreneurs who navigate unpredictable environments through a unique decision-making framework.
What is Effectuation?
Effectuation is defined as a decision-making process where entrepreneurs start with the resources they currently possess and derive goals from those resources, rather than beginning with a specific goal and acquiring the necessary resources to achieve it. This approach contrasts with traditional causal reasoning, which is linear and goal-oriented.
The Fridge Analogy
A common analogy used to illustrate effectuation is that of planning a dinner party. Instead of creating a detailed menu and shopping for specific ingredients, one assesses what is already available in the fridge and pantry. This encourages creativity and adaptability, allowing for the combination of existing ingredients to create a meal, similar to how entrepreneurs can utilize their current assets—skills, relationships, and knowledge—to innovate.
Applicability to Corporate Innovators
Effectuation is particularly relevant for corporate innovators operating in fast-paced and uncertain environments. By adopting effectuation principles, these innovators can effectively utilize their existing resources for innovation while managing limited budgets. This approach allows organizations to experiment and innovate without overextending their financial resources.
The Six Pillars of Effectuation
- Bird in Hand Principle: This principle emphasizes starting with the resources you already possess, which can be categorized into three groups: who you are (your traits, tastes, and abilities), what you know (your education, training, expertise, and experience), and who you know (your social and professional networks).
Example: 3M leveraging its existing adhesive technology to create Post-it Notes.
- Affordable Loss Principle: Focus on what you can afford to lose rather than potential gains.
Example: Google exemplifies this through its 20% time policy, where employees dedicate one day per week to personal projects, effectively “losing” productive time. This calculated risk has led to breakthrough innovations like Gmail, demonstrating how a controlled, affordable loss can generate significant value.
- Lemonade Principle: When life gives you lemons, make lemonade. Embrace surprises and use them as opportunities.
Example: During the COVID-19 pandemic, General Motors (GM) pivoted its manufacturing capabilities to produce personal protective equipment (PPE) for healthcare workers.
- Crazy Quilt Principle: Just as a multilayer fabric consists of several layers woven together, the crazy quilt principle involves weaving together partnerships with various stakeholders.
Example: Siemens collaborates with various stakeholders, including local governments and technology partners, to develop smart city solutions.
- Pilot-in-the-Plane Principle: Focus on activities within your control.
Example: Tesla exemplifies this principle by actively shaping its market through innovations in electric vehicle technology and battery production.
- Non-Predictive Control: Shape the future rather than trying to predict it.
Example: Toyota’s Just-In-Time (JIT) manufacturing system exemplifies non-predictive control
Aster Capital’s Experience and Toolkit
We have developed a series of workshops aimed at educating corporate innovators on intrapreneurship and essential entrepreneurial tools. Our intrapreneurship toolkit equips project managers with the skills to de-risk their initiatives and foster innovation within their organizations.
Ready to empower your team? Book a meeting with us today to explore how our tools can guide your innovation managers in a structured way.
Want to Go Further? Discover Our Recent Webinar on Effectuation with Michelin, SNCF & EDF
We recently conducted a webinar that explored nine key lessons drawn from over 20 years of experience in the intrapreneurship space. If you’re interested in discussing how to structure a program leveraging effectuation principles, check out our summary and YouTube replay here.
