How Entrepreneurial is Your Causal or Effectual Development Strategy? The Impact from Environmental Dynamism

Since Sarasvathy’s seminal article on effectuation, entrepreneurship scholars slowly started to recognize that because entrepreneurs are creative problem solvers that operate in uncertain and ambiguous environments, they might apply effectual instead of causal logic of action during start-up development. Although Sarasvathy conceptualize causation and effectuation as two extremes from the same spectrum, recent development shows that both logics can occur simultaneously. It also suggests that under uncertainty, a simultaneous focus on action and planning might increase company performance as it explores and exploits new opportunities. The present study follows and extends these arguments, and posits that the interaction between causation and effectuation is induced by the level of environmental dynamism. Moreover, even though the amount of studies on the antecedents and influencers of effectuation and causation strategies grew steadily, insights into firm-level outcomes are scarce. The present study addresses this by asking whether and how causation, effectuation and environmental dynamism interact and have an impact on firm-level outcomes: the entrepreneurial orientation of the firm, and subsequently its size.

We find that Entrepreneurial Orientation is a way through which strategic planning turns into larger SME. In other words, a causal, strategic behavior of entrepreneurs first enhances the entrepreneurial orientation of the firm and then impacts firm size. In line with a contingency approach, we also find that it is a conditional process. The mediation holds in very stable environment but is threatened as the environment becomes more turbulent. In the latter case, effectuation offers a way to counteract the moderating role of dynamism. We find a significant, positive moderating effect of effectuation, which enhances the impact of strategic planning on the entrepreneurial orientation of the firm, as well as a significant negative moderating effect of dynamism on the same conditional process. It suggests that, in the context of a highly changing environment where continuous change and adaptability are required, there will be an increased need for entrepreneurs to develop ambidextrous logics, drawing on both effectuation and causation. It calls for a renewal in entrepreneurship education, with action-oriented programs that develop both causal and effectual logics of action, as well as their combination according to specific contingencies.