Causation versus Effectuation

Effectuation is the inverse of traditional theories of causal rationality, which assume that goals
can be predefined at the outset of the entrepreneurial process on the basis of historical
information, enabling predictions about the future. The use of effectual logic is more suitable
in cases of Knightian uncertainty, in which the future is not only unknown but unknowable
even in principle. In contrast, causation is more suitable for situations characterized by risk.
Sarasvathy (2001) explains the difference between two approaches in an example of a chef
cooking dinner. In a causal approach, the chef would develop a list of ingredients necessary
to cook a pre-determined dinner, shop for those ingredients and cook the meal. In an
effectual way, however, in which the meal is not pre-determined, the chef would cook a meal,
among many possible meals, based on the existing ingredients and utensils in the kitchen.
Characteristics of the effectual approach

Causal logic is goal driven, i.e. means are selected in order to achieve a given goal. In
contrast, effectual logic does not begin with a pre-defined goal. Goals emerge from a
given set of means; therefore, the basis for action for effectual logic is the means
under the control of the entrepreneurs.
While in causal logic, investments are typically done based on the prediction of
possible gains for a number of alternative scenarios, in an effectual logic they are
made based on what entrepreneurs can afford to lose. Effectuation eliminates the
dependence of the entrepreneur on predictions of future sales, possible risks and
market conditions, which are often difficult to calculate.
While causal logic emphasizes competition, and as a result competitive analysis for
reducing uncertainty, effectual logic highlights the importance of partnership and
commitments of stakeholders in eliminating uncertainty. As Sarasvathy (2008) states:
Effectuators do not choose stakeholders on the basis of preselected ventures or
venture goals; instead, they allow stakeholders who make actual commitments to
participate actively in shaping the enterprise. This way business and product goals
evolve, i.e. opportunities are created, based on the inputs of a number of selfselected stakeholders.
While the causal logic emphasizes avoiding the unexpected through various modes
of prediction and planning, thus achieving predetermined goals in spite of
contingencies, the effectual logic embraces the unexpected and strives to exploit
those contingencies. Therefore, for an effectuator, uncertainty is not something to
avoid but rather a resource utilized in creative process of venture development.

Fig.1: Linear activities in a causal process (adapted from Shah and Tripsas 2007)

Fig.2: Dynamics of an effectual process (adapted from Sarasvathy et al., 2014)

The predictive rationality of casual reasoning defines a process, in which opportunities are
identified at the beginning of the process. These are then followed by a number of linear steps
such as market research, competitive analysis, development of a business plan, acquisition of
resources to implement the business plan and adopting it based on feedback from the
emerging environment (Read, Dew, Sarasvathy, Song, & Wiltbank, 2009). The causal process
is illustrated in Figure 1. In a causal approach, considerable amounts of time and resources
are spent on activities such as research and analyses, in an effort to achieve a predetermined
market or product idea from an optimal market segment.
In contrast, an effectual process starts with a set of means available to the entrepreneurs.
Pragmatically, entrepreneurs start thinking of what they can do with their given sets of means
rather than what they should do. They begin to imagine and implement possible effects that
can be created and are worth creating. They move directly into action and interaction with
other people. Those who commit to the new venture bring in new means and goals. This
results in an expanding cycle of means and a converging cycle of goals. Through the process
of converging cycles of goals, new markets are co-created through stakeholder commitments
Figure 2 depicts the dynamics of the effectual process.