The Effectuation Dynamics: The Identification-Cognition-Empowerment Perspective

Abstract

This paper investigates effectuation dynamics, the key different decision-making logics, under the uncertainty on starting new ventures are hybrid by both of causal and effectual reasoning. Many entrepreneurial teams adjust their cognitive styles based on the different challenges they face during the new venture life cycle. Due to the high uncertainty (short life cycle and high competition) of app economy, we choose the new venture firms are in app business and also adopted for a given app affects app performance as measured by the database of apps. Using data from 71 in-depth interviews with 28 executive members, we recorded 179 key decisions chronologically and examined the pattern of decision-making processes. Drawing on the identity-cognition-empowerment perspective, our examination supported the effectuation dynamics, as constructed from entrepreneurs' and industry social exchange mechanisms with effectuation principles and explored how the transitions between the two decision-making processes impact start-up teams. We show how new venture firms empower structurally embedding their transactions, negotiating and financing capabilities, which enable firms to use social mechanisms for adapting, coordination and safeguarding. Our observations also suggest an evolving intelligence on strategic decision-making, demonstrating how effectuation and causation logics are combined, and how entrepreneurs emphasis by integrating and synthesizing transaction cost economics and social network theory.