Effectuation – an approach to overcome the corona crisis stronger than before

While in most countries of the world the corona virus has paralysed large parts of the economy, travel is severely restricted and most people pursue their professional activities from their home office, the question arises as to when this crisis will be over and how everything will then go on. One is clear in this situation: there will be no ready-made plan; there is still a great deal of uncertainty and business activities will only gradually be ramped up again, with no guarantee that a further spread of Corona will not cancel out the progress made. This is why a new approach called “Effectuation” will be helpful, which is increasingly important in the environment of start-ups, innovative technologies and entrepreneurship education.

Effectuation is about “flying on sight” and making decisions under great uncertainty. It is therefore not possible to forecast exactly what will happen. Therefore, it is also not possible to formulate goals and to think in terms of results. With Effectuation you can steer without having a prediction, a plan or something similar available. With reference to the theory of “Dynamic Capabilities”, Effectuation is above all a resource-based approach that relies on own resources, knowledge and partnerships. In an experimental learning process, a muddling through or trial and error, new ideas, new skills are generated, which in turn lead to new business opportunities. The process consists of “active creating”, hence the somewhat unwieldy name.

Effectuation relies on agreements and joint action by actors who come together to shape their future. Available resources and know-how determine what is possible. In the process of exploration, however, the know-how is continuously developing. The motto here is “the journey is the goal” rather than “the goal determines the journey”. Partnerships help us to perceive new perspectives and to strengthen each other, something we have (again) appreciated particularly in times of the crisis. One thing is for sure, uncertainty paralyses us, prevents us from going forward, experimenting with new approaches and consequently coming out of a crisis stronger again. But without the first steps, nothing will happen, which of course is not a solution in this situation.

In her book “Effectuation. Elements of Entrepreneurial Expertise”, Saras D. Sarasvathy, the founder of “Effectuation” describes five principles that can be helpful in decision-making on the way forward (or out of a crisis):

1.      The “bird in the hand” principle: Starting with means and creating new effects

The point at hand is to consider now, i.e. still in the crisis, what opportunities can arise from available means and know-how, to use them consciously and not to start thinking from the goal and overstretch the means. This is why it is necessary to keep employees in the company as long as possible and not to dismiss them, so that the company can come out of the crisis with momentum. This is the purpose of “reduced working hours” in many European countries, where employees remain employed, but are up to 100% at home and receive at least partial payment from the government.

2.      The “affordable loss” principle

Profit-oriented thinking tries to direct all activities towards the greatest possible profit. With Effectuation, however, one should rather ask oneself what losses one is prepared to take (at most). It is therefore primarily a matter of prioritising the use of resources in order to move forward on the one hand, and on the other hand not to put all your eggs in one basket and thus risk everything. In order not to be misunderstood here, of course it is also about making profits, but these are not the main focus, but result from a meaningful use of available resources. This is where (project) portfolio management with suitable key figures for the use of resources comes into play.

3.      The „Crazy Quilt“ Principle

Usually project teams are selected according to the project goals and the corresponding role descriptions, i.e. everything is done “top-down”. In the context of Effectuation, however, this principle is reversed. Freely adapted from the motto of Open Space events: “Whoever is there is the right one and what happens, happens…”. It’s more a matter of becoming aware of the skills, know-how and above all the motivation that are there and how these can best be brought to effect. The more diverse, the better, because this simply results in more opportunities and more variations are possible. For example, trainings that have so far mainly taken place as face-to-face training can now be presented in new, digital formats by combining traditional didactic skills with modern, technical tools. In other words, exactly the right mix of resources, know-how and partnerships is needed to get back into business with power.

4.      The “Lemonade” Principle

Usually we try to achieve the set goals while avoiding uncertainty. So, uncertainty is something that bothers us and that we cannot or do not want to deal with. But of course, every crisis also offers a chance, so in a figurative sense you can make a delicious lemonade from lemons. The current crisis also brings opportunities. For example, it is causing us to think about how we want to shape our lives, how we can work together to get climate change under control, or what services we can use to survive on the market in the future. In one of my earlier blogs I pointed out that supply chain management, for example, should be urgently reconsidered after the crisis and the regional economy should be strengthened again so that we are no longer dependent on low-cost suppliers from Asia. Digitalisation will also receive a significant boost after the crisis, as will the question of what work cannot be done from the home office.

5.      The “Pilot in the Plane” Principle

Typically, causal logic is based on the assumption that to the extent we can predict the future, we can control is. The effectuation instead assumes that to the extent we can control the future, we do not need to predict it. Just like a pilot who does not think about the mistakes he has made in the past and always looks ahead, decisions in uncertain times are all about looking ahead in a positive mood. So, in the current crisis, it is no use dwelling on conspiracy theories, possible mistakes made by politicians or one’s own situation during the crisis, but rather learning from it, seizing the opportunities and courageously embarking on the journey.

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Author: Reinhard Wagner, CEO of Tiba Managementberatung

 

 

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