Business development analysis
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Business development analysis

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Explanation of the two concepts: Causation and effectuation
Discussion of the role of networking in business development

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Published 04 February 2013
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Language English
Business development analysis
Home Exam
20/01/2012
Table of contents
Business development analysis 20 janvier 2012
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Business development analysis 20 janvier 2012
Question 1: “Causation and effectuation”
Through a research article, Sara D. Sarasvathy presents two specific concepts: “Causation and effectuation”. These two concepts are presented as being opposed and for addressing the concept of business development separately. Thus, according to the author, these two concepts are basic to understanding theories of management and economics, or artifacts such as business, organization and market. If, through this text, the author presents these concepts as different ways to approach or reflect a situation of business, it is important to note that the concept can also be used in the everyday life, and according to the situations encountered, context or values of an individual it will tend to use more or less one or the other. Indeed, each of these concepts is derived from the way of reasoning of an individual and can sometimes occur simultaneously. They sometimes confuse one another as the context for decisions or actions to be implemented. But what really are these two processes, how are they defined? What are their key principles? And what will be their influence on the development of a business?
The process of effectuation actually requires to adopt:“a logic of prediction” (Sarasvathy, 2001), that is to say that this process refers to planning and it will aim to seek to anticipate the future, trying to predict using the analysis of different elements, such as the environment of a business or its market. The author defines the notion of effectuation, through his text, as a process: “take a set of means as given and focus on selecting between possible effects that can be created with that set of means” (Sarasvathy, 2001). In other words, the effectuation can be seen as the use of resources as they present themselves to achieve a purpose or a goal that was unclear or initially unfixed, but emerges gradually through the use of available resources. It is therefore logical that, as the author says, the decision-making process in the form of effectuation will decompose according to the following points:a given set of means”, “a set of effects or possible operationalization of generalized aspirations”, “constraints on possible effects”and“criteria for selecting between the effects”(Sarasvathy, 2001). Several examples are used by the author to explain the concept of effectuation. So if we take the example of the cooker, in a process of execution, he will use all the ingredients that are available to him in his kitchen to prepare a dish especially among all the possibilities that these ingredients offered him. It is therefore understood here in the process effectuation that multiple outcomes are possible. Thus, a decision maker will increasingly goals and may even change his last in course of time depending on the resources available to him.
Causation can be seen as the opposite of effectuation. Indeed, in contrast to the effectuation, the process of causation requires him“a logic of control”(Sarasvathy, 2001). This means that during this process, the goal will be to keep a check on the progress of things in order not to deviate from the final result that you want to achieve. Thus, the author presents the notion of causation as a process:take a set of means as given and focus on selecting between possible effects that can be created with that set of means.”(Sarasvathy, 2001). This means that the causation is to set a target or goal from the outset and that the resources will then be combined to achieve them. Logically, the author breaks down the decision process of causation as follows:“a given goal to be achieved or a decision to be made”, “a set of alternative means or causes”, “constraints on possible means” and “criteria for selecting between the means”(Sarasvathy, 2001). Here again are some examples set by the author. But take the example of the chef to properly highlight the difference between the process of causation and effectuation. Thus, a
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cooker will offer to the customer a particular meal and take care to buy and assemble all the ingredients needed to prepare this dish. It is thus clear that the process of causation is to establish a goal from the outset and those resources must be met to achieve it. Unlike the effectuation only one result is possible and it will not change the circumstances or over time.
Some key principles form the theory of these two processes. The author describes well the principles of effectuation as follows (the principles forming causation will be exactly the opposite of the statements below): -“Affordable loss rather than expected returns”, -“strategic alliances rather than competitive analyses”, -“exploitation of contingencies rather than exploitation of pre-existing knowledge”, -“controlling an unpredictable future rather than predicting an uncertain one” (Sarasvathy, 2001).
Also, as I mentioned in the introduction, certain circumstances such as the context or the individual himself conceded more sustainability in adopting one of two approaches to decision making. Indeed, when the decision maker will have knowledge, and this prior to making decisions, such as expertise in a certain area conceding a competitive advantage, employing the model of causation will be preferable. However, the process of effectuation will be more suitable for the operation of events that occur over time. These can effectively influence the construction of the ultimate goal according to some opportunities that may appear gradually. This shows that neither of these two processes is no longer more relevant or more effective than the other. But only different factors will contribute to the use of a process rather than the other. Thus, in some situations the effectuation will be more relevant than the causation and vice versa.
Sarasvathy introduces two concepts and exposing two separate processes on the business development. However, this author is not the only one who worked on this and many other researchers have been interested in the subject using different terms and concepts. It is thus interesting to compare all of the literature we studied during this entire module in order to compare the similarities and differences with respect to business development. Shane & Delmar (2004) discuss the importance of making a business plan, and therefore plan, before starting a business or undertaking any commercial activity within a company. The results of their study highlight the fact that the realization of a business plan and therefore the planning of all activities will be beneficial to a company because it will be better prepared for future events and therefore use all resources available in a more appropriate way. Indeed, having clearly defined goals from the start, the resources are used efficiently and without waste. Thus, their conclusion is similar to the causation in the sense it will be beneficial to set objectives from the beginning and be able to mobilize all the resources necessary to achieve his ends. Gruber (2006) also performs an important work to highlight the utility of planning and therefore to provide a business plan or not. He presents us two paradigms and through his study: "the rational paradigm" which highlights the benefits of planning. This concept can be compared to the concept of causation which would be defined in advance in order to use resources efficiently. The second concept that he presents is“the incremental paradigm”that is opposed to planning and therefore to the achievement of business plan because it would limit the responsiveness and flexibility of a company if changes were to occur. This paradigm can be compared to the notion of execution, as will be used by the circumstances of the events in order to adapt its objectives over the time. If the author presents here two concepts, it is clear that he takes part of“the rational paradigm”and the process of causation, arguing that
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it improves the performance of a company, accelerate the decision-making even in a dynamic environment where changes occur rapidly and regularly. Brinckmann & Al (2010) also worked on business planning. Through their research, they seek to determine whether it is better to plan the creation of a company in advance or not. Their search leads them to conclude that planning will be more beneficial for a company that already exists. This will improve the results of a company when it is located in a stable environment. Their conclusion is thus akin to the notion of causation where it will actually be better to set goals at the outset and then to work and use all possible means to achieve them.
Finally, the literature highlights the fact that the effectuation and causation are two separate processes from each other but none is better than the other. Indeed, the use of one or the other will depend largely on the context. I totally agree with this principle. Indeed, in a changing environment, it will be more adapted to use the effectuation, because under the circumstances arise, the company will send it easier to seize opportunities and to reorganize their objectives thanks to the flexibility that concedes this principle to a business. However, in a more stable environment, the causation is more beneficial to a company. Indeed, this process will allow a company to plan its activities in advance and therefore its resources in the best way possible.
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Business development analysis 20 janvier 2012
Question 2: “The role of networking in business development”
The importance of networks for the start-up, particularly those located in highly innovative industries where change is very rapid, is increasingly recognized. Indeed, recently and thanks to the internet, there are now many groups or social networks for entrepreneurs that are emerging in order to facilitate the recommendation of their members. In my opinion, the success of any entrepreneur and his company will require a lot of effort and work and will require the development of contacts and a network. Without it the chances of success will be severely limited. Recent and small companies often have difficulties in the deployment of resources usually necessary for their business because of a lack of means and sometimes expertise. I think that it is therefore important that startups spend a lot of effort in developing their network to support the expansion of their business. The establishment of a wide network, efficient and especially suited to the business of a company thus allows it to create business relationships, to share costs, create synergies, build partnerships, to gain skills, to win new customers and then ensure its growth.
The literature highlights the fact that networking is one of the most important resources of a company (Ostgaard & Birley, 1996). I totally agree with the author because, as I have stated previously, the notion of network can have an impact on many aspects related to the activity of a company both internally and externally, and that throughout the life of the company. With the help of its network, an entrepreneur will be able to benefit from counseling, from the experience of other entrepreneurs and thus get answers on all questions or doubts they may have during the different stages of the development of its business. Even before the creation of a business, I would advise an entrepreneur to devote its efforts on the development of its network. Indeed, by surrounding himself with good people, an entrepreneur can achieve to earn some credibility. He may also get help and be guided by experts in drafting his business plan. This will allow him to put all the chances on his side to defend his project and obtain financing more easily from outside investors. During the life of a company, I think that the efforts on the development and maintenance of a network again will devote a significant advantage to a start-up. The establishment of a network of entrepreneurs working in the same area or field can actually, in my opinion, afford to upgrade their skills and they will receive training while being aware of the changing environment in which is located the start-up in question. This is particularly important when the start-up is in an industry where change is very fast. Indeed, with the ability to network with other business owner, an entrepreneur will achieve to anticipate evolutions and gain some new competences that enable to innovate or improve existing products (Pittaway, Robertson, Munir, Denyer & Neely, 2004). The network and the relationships developed with entrepreneurs or their companies, suppliers, customers, or any other trade professionals therefore directly affect: - The Innovation, through new skills to be acquired. - The Understanding of the evolution of the environment, thanks to the information to be harvested. - The performance of the business, through the appropriate use of resources put in common.
A start-up will be sometimes handicapped by its small size, which is usually due to its recent creation. Therefore, I would advise a start-up to focus on its network that will again provide a solution about that disability. Due to lack of employee and means, a start-up can actually find it difficult to achieve in carrying out these activities and especially to do it well. Indeed, when starting a business, it is necessary that the leader supports many activities such
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as marketing, management, computer science or accounting. The leader will have to take rapid decisions on all these subjects which are particularly critical to the survival of his company. Alone, all of these tasks can be difficult to achieve, thus I think that the network will sometimes help to carry out all these tasks and so with confidence, thanks to the external aid which could be provided. Also in connection with the small size of a start-up, this latter may experience some difficulties to face with large companies. Thus, I believe by mobilizing its entire network and its partners, companies can also reach to compete against the big companies. By pooling their resources and dividing the tasks, a network of start-up can reach to support heavy projects or to answer important calls offer and thus compete with all large competitors.
As I demonstrated above, the efforts on the establishment of a network can prove to be a major asset for a company and sometimes even be necessary to its survival. Therefore I would advise an entrepreneur that it will be very important for its innovative start-up to set up a large network right from its foundation. Networking efforts must then be continued to ensure the development of the company. Indeed, in my opinion the success of a start-up will depend on the development of its network because as I explained the contributions of networking are numerous and invaluable. Thus, I think that an entrepreneur must therefore strive to establish and maintain a maximum of relations with others. If the entrepreneur does not have its own network I would advise him to participate in forums, conferences or briefings involving other companies and leaders to create valuable relationships with different partners. There are also now some website such as LinkedIn, which will allow the entrepreneur to develop and maintain its network. Thus, I am convinced that the use of these various tools can be very effective in setting up a network which is important to the life of a startup. For those reasons, I fully recommend an entrepreneur to consider the development of his network as an entirely task to run its company effectively.
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References
Business development analysis 20 janvier 2012
Brinckmann, J., Grichnik, D., & Ka sa, D. 2010 "Should entre reneurs plan or jus storm the castle? A meta-anal sis on contextual factors im actin the business lanning-performance relationship in small firms",Journal o Business Venturing, 25 (1): 24-40. Gruber, M. 2006 "Uncoverin the value of lannin in new venture creation: A process an contin enc ers ective",Business VenturinJournal o 22: 782-807. Ost aard, T.A. & Birle , S. 1996) "New venture growth and personal networks",Journal of Business Research, 36 1 : 37-50. Pittaway, L., Robertson, M., Munir, K., Denyer, D. & Neely, A. (2004) "Networking and innovation: a s stematic review of the evidence";International Journal of Management Reviews3&4 :137-168., 5/6 Sarasvath , S.D. 2001 "Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency",Academy of Management Revie, 26(2): 243-263. Shane, S. & Delmar F. 2004 "Plannin for the market: business lannin before marketing and the continuation of organizing efforts",Business Venturing,Journal o 19: 767-78.
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