Affordable Loss Research Articles

How does entrepreneurial opportunity affect the decision-making process of effectuation?

PurposeThe purpose of this paper is to bridge the obvious gap presented in research on antecedents of effectuation by building a research model from the perspectives of effectuation and entrepreneurial opportunity.Design/methodology/approachThis paper examines the effects of patterns of opportunity discovery and the innovativeness of entrepreneurial opportunity on the decision-making process of effectuation in new venture creation. Eight hypotheses are put forward and examined by hierarchical multiple logistic regression. The data in this paper are based on the first two rounds of survey data from Chinese Panel Study of Entrepreneurial dynamics.FindingsThe empirical results show that patterns of opportunity discovery have significant positive effects (at least partially) on effectuation. Namely, entrepreneurs employing fortuitous discovery tend to use available means and leverage contingency. And with lower innovativeness of opportunity, entrepreneurs are more likely to use affordable loss and leverage contingency.Research limitations/implicationsThe study is limited to each dimension of effectuation based on the single-item measure, which cannot completely reflect the effectual construct. More research should to be done to improve measures of effectuation.Practical implicationsThe findings are useful for entrepreneurs to make effective decisions whether to choose effectuation in the face of different patterns of opportunity discovery. Besides, it provides the advice on how to cope with the innovativeness of opportunity and seize entrepreneurial opportunities to entrepreneurs.Originality/valueThis paper first systematically studies the effects of entrepreneurial opportunity on effectuation, making up for the obvious gap of research on antecedents of effectuation.

Overcoming the liability of outsidership in institutional voids: Trust, emerging goals, and learning about opportunities

Building on the complementarity of the revisited Uppsala model and effectual logic, this article examines the role of affective and cognitive trust for developing knowledge in the context of small- and medium-sized enterprise (SME) internationalization in emerging markets. Drawing on qualitative interview data from New Zealand SMEs engaging with Chinese business partners, the article first shows that an overreliance on affective trust can result in a situation of ‘persistent mediation’, in which learning about opportunities is impaired. Second, utilization of the affordable loss principle and a focus on control facilitates relationship-specific knowledge, which may also lead to cognitive trust. However, cognitive trust does not necessarily transform in the substantive business market knowledge needed to overcome the liability of outsidership. Third, business market knowledge is advanced when partners mutually set goals and develop the opportunity, which potentially also fosters cognitive and affective trust.

Effectuation, innovation and performance in SMEs: an empirical study

Purpose– Ever since Sarasvathy’s (2001) seminal article, scholars have sought to test effectuation’s affect on firm performance. Although recent work has begun the arduous process of testing effectuation’s effect on entrepreneurial performance, there is still much to learn about its impact on firm performance. One such area is the relationship between effectuation and innovation. The purpose of this paper is to first, propose a scale suitable to the explication of the effectuation construct relative to innovation. Second, it proposes a more parsimonious scale for the measurement of innovation. Third, these scales are tested relative to firm performance.Design/methodology/approach– This paper develops and tests a structural model, which investigates aspects of effectuation as mediators between innovation orientation and product/service innovation. This is accomplished using a sample of 169 electronic product manufacturing-based small and medium-sized enterprises (SMEs). Subjective measures of performance are used as the dependent variable.Findings– The three most widely used measures of innovativeness were found to break cleanly into two sub-constructs, namely innovation orientation and product/service innovation. Effectuation measures included means (who I know), leverage contingencies (experimentation), pre-commitments and affordable loss. Means and leverage contingencies were found to positively mediate innovation orientation and product/service innovation leading to increased firm performance. Affordable loss did not show a mediating role, but had a direct effect on firm performance.Research limitations/implications– This study establishes two distinct sub-constructs of firm-level innovation; namely innovation orientation and product/service innovation. Second, by testing an innovation-centric effectuation model, this research establishes an empirical relationship between effectuation, innovation and firm performance.Practical implications– Practical implications include establishing a relationship between means, leverage contingencies and innovation-performance, indicating that the ways through which small and medium-sized enterprises use their innovation networks may affect innovation outcomes and ultimately firm performance.Originality/value– This research establishes an empirical relationship between effectuation, innovation and firm performance, extending effectuation theory from the entrepreneurship to the innovation literature.

Do Effectuation Processes Shape the Relationship between Product Diversification and Performance in New Ventures?

This study applies the lens of effectuation to product diversification and examines the moderating effects of effectuation processes on the relationship between diversification and performance in new ventures. Effectuation processes are conceptualized in terms of experimentation, affordable loss, flexibility, and pre–commitments. The findings indicate that, with the exception of affordable loss, effectuation processes exert a positive effect on the diversification–performance relationship. Theoretical and empirical implications are discussed.

An appreciative inquiry into the first export order

Purpose– This study aims to report on an investigation into decision-making leading to a UK firm’s first export order. It demonstrates the application of appreciative inquiry (AI) as an underutilised research method in marketing investigations.Design/methodology/approach– An AI research approach was undertaken in a firm that had not started exporting at the commencement of the study whereby the interventionist approach allowed the management team to overcome negative perceptions in their decision-making. From a research perspective, marketing decision-making could be understood in real time as opposed to in hindsight.Findings– While the key decision-maker is likely to be the owner/manager in small newly internationalising firms, a variety of factors will affect the decision to start exporting including the influence of the management team. In particular, the management team’s perceptions towards a combination of effectuation- and causation-based decision-making where risk/reward considerations in exploiting various international marketing opportunities are undertaken in light of perceived affordable losses, as well as against evolving objectives.Originality/value– The contribution is to demonstrate the AI methodology, which to date has received attention in management domains other than marketing; it offers an interventionist approach to help managers overcome barriers and move positively forward in decision-making. It offers researchers an opportunity to understand marketing decision-making in real time.

Gender and the Structuring of the Entrepreneurial Venture: An Effectuation Approach

This study adds to the entrepreneurship literature by addressing the role of gender in entrepreneurial decisions. We adopt effectuation as an alternative framework and method to the typical experimental laboratory methods and investigate whether the contrasting evidence on the gender-entrepreneurial decision relationship is due to the methodological and conceptual limits of the traditional models of decision making. We find that men rely on the effectuation framework more than women and that diverse stored information mediates gender differences in adopting effectual criteria. We do not find that women adopt the effectual 'affordable loss' decisional criterion more than men despite their stronger perception for negative consequences and worst-case scenarios. The study also contributes to the effectuation literature by introducing the use of effectuation as an analytical framework for research on a peculiar category of decisions, i.e., decisions under ignorance.

Effectiveness of Effectuation-Based Entrepreneurship Learning

School plays an important role in shaping the characters of an entrepreneur. In many cases, the success of an entrepreneur is believed to be closely related to his/her education. The appropriateness of the entrepreneurship learning method will greatly influence the quality of the graduates’ ability to run their businesses. One way to produce entrepreneurs is through effectuation-based approach. This approach consists of five principles: (1) a bird in hand; (2) affordable loss; (3) crazy quilt; (4) lemonade; and (5) pilot-in-the-plane. The purpose of this research is to analyze the effectiveness of effectuation-based learning in comparison with causation-based learning. This research uses qualitative descriptive approach by taking samples from students who experienced causation-based learning and effectuation-based learning. Ciputra University conducted the research by distributing 5-point Likert Scale questionnaires to 30 students who followed causation-based entrepreneurship learning and conducting surveys to 30 students who followed effectuation-based learning.The five indicators tested in this research are (1) business idea discovery, (2) risk minimization, (3) business flexibility, (4) networking, and (5) resources utilization. Research result suggests that, based on the five indicators, students who received effectuation-based learning have higher average score than those who received causation-based learning. Keywords: Learning model, entrepreneurship, effectuation approach

On valuing biopharmaceutical product pipelines: an effectuation model and evidence

New creative approaches are needed to manage emerging biotechnology innovations, regulations, and payor environments to enhance product pipeline productivity, valuation, and risk management. Biopharmaceutical firms must make dynamic resource allocation decisions on their relative levels of internal R&D and external strategic alliances in furthering their pipelines. As the predominant method of using discounted cash flow (DCF) methodologies may lead to chronic underinvestment and performance, we evaluated the integration of traditional DCF with an effectuation model of analysis. Unlike traditional financial models that begin with the end goal of assumed known cash flows and recursively solve for portfolio optimization, the effectuation model—means, affordable loss, partnerships, and expect the unexpected—begins with resources that are readily available to the firm and then seeks to maintain strategic flexibility to take advantage of environmental contingencies as they arise. Using effectuation principles can provide insight into optimizing pipeline decisions by focusing on the logic of control rather than the logic of prediction. Using empirical data, we found that investors were able to effectively differentiate between the pipeline values of among companies. Overall, these results suggest that the integration of effectuation and DCF provides a lens from which to explore emerging varieties of small and large company innovation in the biopharmaceutical industry.

The conflict potential of the entrepreneur’s decision-making style in the entrepreneur-investor relationship

While prior research has indicated the importance of conflicts between investors and entrepreneurs, little is known about their causes. We use theory on entrepreneurial decision-making to examine the impact of a founding team’s causal versus effectual decision style on the level of perceived task conflict that founders experience with their venture capitalists. Based on a sample of 141 German ventures, we find that a founding team perceives fewer conflicts when following the causal principle of overcoming the unexpected and the effectual principle of affordable loss.

The first export order: a marketing innovation revisited

This study reports on an investigation into what lies behind a firm's first export order and revisits the questions posed in the classic article by Simmonds and Smith [(1968). British Journal of Marketing, 2, 93–100]. It concentrates on risk/reward considerations in decision-making. Interviews were undertaken with owner/managers who were the key decision-makers in 10 newly internationalising UK start-up firms, that is, in their first year of operation, in order to avoid recollections in respect of hindsight. The findings highlight that a variety of factors can affect the decision of owner/managers in small firms to start their internationalisation path. Decisions are made in the context of perceived risk/reward considerations regarding exploiting various opportunities; for example, what are considered to be affordable losses against respective owner/manager's objectives and experience. The contribution of the study is that it employs an effectuation lens in respect of the first export decision.

Internationalizing Entrepreneurs: Bridging Real Options Reasoning and Affordable Loss Logics

Drawing upon the theories of real options and affordable loss, this study examines why and how internationalizing entrepreneurs willingly and rationally contend with extreme uncertainty in the purs...

Dielectric Properties of Ultra‐Low Sintering Temperature Al2O3–BBSZ Glass Composite

Ceramic composites of B2O3–Bi2O3–SiO2–ZnO (BBSZ) glass mixed with Al2O3 (10–50 vol%) were sintered at 450°C, and their microstructural and dielectric properties investigated. Dense structures were obtained when the Al2O3 content was lower than 30 vol%. Raman, XRD, and FESEM showed the existence of a secondary phase, Bi24Si2O40, in all samples. The dielectric properties of the composite with 30 vol% addition of Al2O3 showed good dielectric properties with εr of 14.8 and 20.8 and 32.5 at 100 kHz and 100 MHz and 1 GHz, respectively. The tanδ values at the same frequencies were 0.004 and 0.006 and 0.016. The results show that BBSZ glass with different amounts of Al2O3 exhibit widely applicable relative permittivity values and affordable loss and are thus promising candidates for ultra‐low sintering temperature applications.

Critical Reflections on the Entrepreneurship Programme Designed to Develop Effectual Entrepreneurs

This article reports on a study that was largely a qualitative, critical examination of the Tsohang Entrepreneurship Programme which was designed to develop effectual entrepreneurs. The programme was primarily examined in terms of its theory of change, which evaluates effectuation, as well as evaluating its effect on the trainees' mind-set, as assessed through business decision processes and improved business practices. Effectuation advances a business decision process that attempts to guide business actions and activities toward choosing particular effects on the grounds of the available means, using the principles of affordable loss, the surprise factor and network building to fabricate and reshape markets. The critical reflection theory was predominantly used for scrutiny and critique of the programme's theory of change as well as certain other aspects of the programme. This was achieved through firstly, broadly identifying and examining the deep-seated assumptions embedded in the programme's conception and applications. Secondly, the study concentrated on tracing the origins of these assumptions. Thirdly, it focussed on evaluating their relevance in our context and within the Small to Medium businesses framework and finally, on suggesting improvements to the programme. The critical reflection theory was additionally utilised to discover the extent to which programme's trainees developed alternative decision processes as a result of their exposure to the programme and how that, in turn, improved their business practices. Through collection of data and analysis of interviews as well as observation, the data were organised in the form of vignettes or critical incidents permitting these researchers to understand some of the effects of the programme on beneficiaries' decision processes and learn of improvements on their business practices. DOI: 10.5901/mjss.2014.v5n25p53

Effectuation and home-based online business entrepreneurs

This article explores effectual processes within home-based, online businesses. Our empirical evidence provides a number of refinements to the concept of effectuation in this specific domain. First, the ubiquity of non-proprietary online trading platforms encourages the adoption of effectual approaches and removes the importance of forming proprietary strategic alliances and pre-commitments. Second, the notion of affordable loss – a central tenet of effectuation – should be extended beyond the notion of economic to social affordable loss, including loss of status and reputation, and finally, home-based online businesses allow effectuation to be associated with low levels of entrepreneurial self-efficacy and experience.

Privacy preserving data publishing: a coalitional game theory perspective

k-anonymity is one of the most popular conventional techniques for protecting the privacy of an individual. In this process, the following limitations are observed: 1 The anonymisation is done based on an assumed value of k; 2 the information loss can be found only after the anonymisation is done; 3 if the information loss is found to be more than the affordable loss then another k is to be considered and the whole process has to be repeated. This paper discusses a novel approach using coalitional game theory CGT to overcome the limitations of k-anonymity. The approach helps fix up the privacy levels based on the information loss. To achieve anonymity, we establish coalitions between the tuples based on their payoffs which are assigned using concept hierarchy tree CHT of quasi identifiers QID. In the process, an attempt has been made to obtain a relation between k and number of distinct tuples with respect to QID set. This helps to find the boundaries of k. The experimental results showing the practicality and scalability are presented.

‘Expect the unexpected’: Implications of effectual logic on the internationalization process

International entrepreneurship literature has indicated that entrepreneurs often increase international activities along unexpected lines of reasoning without having a precise goal, resulting in “unplanned” internationalization. We argue that “unplanned” internationalization does not necessarily involve non-logical decisions; but, entrepreneurs can follow an effectual rather than causal logic and may base their decisions on the affordable loss principle rather than on the maximization of expected returns. Based on five case-studies, we discuss the implication of effectual decision-making on the internationalization process. We find that switching from causal to effectual logic allows firms to rapidly increase the level of commitment in the foreign market and could assist in overcoming liabilities of outsidership and, therefore, successfully increase the level of commitment in the foreign market.

Heat recovery from nuclear power plants

The thermodynamic efficiency of a standard Nuclear Power Plant (NPP) is around 33%. Therefore, about two third of the heat generated by the nuclear fuel is literally wasted in the environment. Given the fact that the steam coming out from the high pressure turbine is superheated, it could be advantageously used for nonelectrical applications, particularly for district heating. Considering the technological improvements achieved these last years in heat piping insulation, it is now perfectly feasible to envisage heat transport over quite long distances, exceeding 200km, with affordable losses. Therefore, it could be energetically wise to revise the modifications required on present reactors to perform heat extraction without impeding the NPP operation. In this paper, the case of a French reactor is studied showing that a large fraction of the wasted nuclear heat can be actually recovered and transported to be injected in the heat distribution network of a large city. Some technical and economical aspects of nuclear district heating application are also discussed.

Reduced Complexity Dynamic Systems Using Approximate Control Moments

This paper deals with reduction of computational complexities in dynamic systems. This paper develops a novel method of reducing complexities with use of control moments of the system. Though the proposed method is validated through channel estimation in this paper, the same can be equally applied to any other dynamic systems. Encouraging results given in this paper prove that the computational complexities can be reduced up to 104 with a marginal affordable loss of performance.

A Coalitional Game Theoretic Mechanism for Privacy Preserving Publishing Based on k-Anonymity

k-Anonymity is one of the most popular techniques for protecting the privacy of an individual and hence preventing an adversary from gaining sensitive information. The observed limitations in this process are: i) The anonymization is done based on an assumed value of k, ii) the information loss can be found only after the anonymization is done, iii) if the information loss is found to be more than the affordable loss then another k is assumed, iv) For each k the whole process has to be repeated. This paper discusses a novel approach using Coalitional Game Theory to overcome the limitations of k-anonymity. The approach helps fix up the privacy levels based on the threshold given for the information loss. To achieve the anonymity, each tuple is assumed to be an agent and is assigned payoff using concept hierarchy tree (CHT) of quasi identifiers (QID) of the given data, later coalitions between the tuples are formed based on their payoffs. We can fix up the boundaries of k for k-anonymity based on the threshold given for the information loss. The experimental results showing the practicality and scalability are presented.

Causation and effectuation processes: A validation study

We develop and validate measures of causation and effectuation approaches to new venture creation and test our measures with two samples of entrepreneurs in young firms. Our measure of causation is a well-defined and coherent uni-dimensional construct. We propose that effectuation is a formative, multidimensional construct with three associated sub-dimensions (experimentation, affordable loss, and flexibility) and one dimension shared with the causation construct (pre-commitments). As specified by Sarasvathy (2001), we also show that causation is negatively associated with uncertainty, while experimentation, a sub-dimension of effectuation, is positively correlated with uncertainty. The major contribution is the resulting validated scales that measure causation and effectuation.