The Principle of Effectuation
Have you ever heard of Effectuation? Effectuation is a relatively young field of research that deals with the question of how successful companies deal with uncertainty. What logic makes it possible to actively shape a company’s future if the environment is uncertain and exact forecasts and planning are not possible? A little surprising result of an empirical study proves that classical management approaches to planning and controlling provide little security, even if they are based on detailed market research. Since even pure gut decisions do not guarantee lasting success, the question remains: How do companies succeed in bringing something new into the world? The answer is: Effectuation.
The five principles of effectuation
In fact, there are five principles according to which successful companies and founders decide and act:
- available resources
- affordable loss
- valuable partnerships
- useful coincidences
- shapable future
What do these principles mean in detail?
A goal is nothing more than a dream if you lack the means to achieve it. So you should ask yourself: Who am I? What can I do? Who do I know? And what can I access immediately? You derive your options from the answers to the questions. You derive goals from your available resources – not vice versa.
In gambling there are different situations where people go “all-in”. In roulette, for example, you can bet everything on a single number or color and hope for luck. There should be people who are lucky and hit the right color, but then can’t stop and gamble everything away in the next round. A company should not rely on luck. But even if it makes profitability calculations with expected returns, it is still in the realm of speculation. If, in addition, it is about innovations in an uncertain environment, then the realisation of an idea or the introduction of a new product becomes a bet on the future. Companies should therefore always act in such a way that they can afford the potential loss at any time. It is advisable to limit the potential damage by taking small steps, e.g. by developing a minimum viable product.
Do you have partners who can or want to contribute to your project? Partnerships can facilitate access to markets. In addition, partnerships increase the resources available and the potential loss can be distributed. Especially in an uncertain environment, you should actively approach potential partners and reach agreements with them at eye level. This also creates new options for action and thus new goals.
You cannot insure yourself against every risk. Surprises happen especially in an uncertain environment. If you are open to such surprises, if you see them as an opportunity for your purposes, then you may even be able to benefit from the coincidences.
Even the best market research will not be able to predict an uncertain future. And what is the point of analysing technological trends if tomorrow a new competitor enters the market with an idea and questions everything that has existed so far? It’s worth actively shaping your own future, especially in an uncertain environment.
What exactly does “uncertainty” mean?
Surely you have noticed it – the term “uncertainty” is used again and again. But what is this “uncertainty”? By “uncertainty” we mean a very special characteristic in our world that is becoming more and more networked, dynamic and unpredictable. It can best be explained by distinguishing it from the classic “risk”: A risk usually describes the danger that a certain, known event can occur. The effect, damage and probability of occurrence of an identified risk can often be predicted or at least greatly estimated. In the truest sense of the word, nothing is certain with “uncertainty”: not even the event, not to mention the effect, the damage and the probability of occurrence.
Why should you be concerned with something that cannot be predicted and for which you cannot prepare? In fact, risk management with a focus on specific events makes only limited sense. Dealing with uncertainty, on the other hand, makes a lot of sense because disturbances, changes and surprises will occur. In my experience, we enter the field of uncertainty as soon as people act – as users, customers, stakeholders, partners or competitors. People are “unpredictable” in the truest sense of the word. And how do you deal with this human unpredictability? The answer is simple and complex:
Take advantage of coincidence!
“Use chances It’s about replacing a “yes, but …” with a “yes, and …”. It’s about thinking about opportunities instead of potential damages. It’s about not investing unnecessary energy in change requests, renegotiations, risk management, etc. The first step in this direction of the mindset is that you cannot plan, control and monitor everything. There are coincidences and they need to be met openly and curiously. “Use chances” also means active action! You can wait for coincidences, hope for positive things. But you can also actively search for coincidences and “challenge happiness”. Do you know company founders who accidentally founded a company? Probably not? Founders actively shape their future. What could you easily do, for example? You could observe users, exchange ideas with customers, talk to competitors. Talk to interesting people and ask questions. Try something new, let yourself be inspired by the unusual.
In this blog Heiko Bartlog has written a series of articles on Agility? We tried it! Does not work!
Heiko Bartlog has more than 20 years of experience in projects, as consultant, trainer, coach in many facets. For several years he has been a "host for innovation", accompanying companies on their way to agility, better cooperation and successful innovation. He uses techniques such as Scrum, Effectuation, Lean Startup, Management 3.0 and Liberating Structures to make change a practical experience. Since 2013 he is co-organizer of the annual Un-Conference PM Camp Berlin. His book, co-authored with Olaf Hinz, "#PM2025 - Projekte. Gut. Machen." was published in 2018 with 7 theses on the future of project work.