Effectuation & newness : an intertwined relationship?

Principal topic: Effectuation theory suggests that entrepreneurs develop their new ventures in an iterative way by selecting possibilities through flexibility and interactions with the market; a focus on affordability of loss rather than maximal return on the capital invested, and the development of pre-commitments and alliances from stakeholders (Sarasvathy, 2001, 2008; Sarasvathy et al., 2005, 2006). In contrast, causation may be described as a rationalistic reasoning method to create a company. After a comprehensive market analysis to discover opportunities, the entrepreneur will select the alternative with the higher expected return and implement it through the use of a business plan. However, little is known about the consequences of following either of these two processes. One aspect that remains unclear is the relationship between newness and effectuation. On one hand it can be argued that the combination of a means-centered, interactive (through pre-commitments and alliances with stakeholders from the early phases of the venture creation) and open-minded process (through flexibility of exploiting contingencies) should encourage and facilitate the development of innovative solutions. On the other hand, having a close relationship with their “future first customers” and focussing too much on the resources and knowledge already within the firm may be a constraint that is not conducive to innovation, or at least not to a radical innovation. While it has been suggested that effectuation strategy is more likely to be used by innovative entrepreneurs (Sarasvathy, 2001), this hypothesis has not been demonstrated yet (Sarasvathy, 2001). Method: In our attempt to capture newness in its different aspects we have considered the following four domains where newness may happen: new product/service; new method for promotion and sales; new production methods/sourcing; market creation. We identified how effectuation may be differently associated with these four domains of newness. To test our four sets of hypotheses a dataset of 1329 firms (702 nascent and 627 young firms) randomly selected in Australia was examined through ANOVA Tukey HSD Test. Results and Implications: Results indicate the existence of a curvilinear relationship between effectuation and newness where low and high levels of newness are associated with low level of effectuation while medium level of newness is associated with high level of effectuation. Implications for academia, practitioners and policy makers are also discussed.

Do strategy choices matter for nascent firms? A study on effectuation and causation impacts on new ventures outcomes

Principal Topic : Nascent entrepreneurship has drawn the attention of scholars in the last few years (Davidsson, 2006, Wagner, 2004). However, most studies have asked why firms are created focussing on questions such as what are the characteristics (Delmar and Davidsson, 2000) and motivations (Carter, Gartner, Shaver & Reynolds, 2004) of nascent entrepreneurs, or what are the success factors in venture creation (Davidsson & Honig; 2003; Delmar and Shane, 2004). In contrast, the question of how companies emerge is still in its infancy. On a theoretical side, effectuation, developed by Sarasvathy (2001) offers one view of the strategies that may be at work during the venture creation process. Causation, the theorized inverse to effectuation, may be described as a rational reasoning method to create a company. After a comprehensive market analysis to discover opportunities, the entrepreneur will select the alternative with the higher expected return and implement it through the use of a business plan. In contrast, effectuation suggests that the future entrepreneur will develop her new venture in a more iterative way by selecting possibilities through flexibility and interaction with the market, affordability of loss of resources and time invested, development of pre-commitments and alliances from stakeholders. Another contrasting point is that causation is ''goal driven'' while an effectual approach is ''mean driven'' (Sarasvathy, 2001) One of the predictions of effectuation theory is effectuation is more likely to be used by entrepreneurs early in the venture creation process (Sarasvathy, 2001). However, this temporal aspect and the impact of the effectuation strategy on the venture outcomes has so far not been systematically and empirically tested on large samples. The reason behind this research gap is twofold. Firstly, few studies collect longitudinal data on emerging ventures at an early enough stage of development to avoid severe survivor bias. Second, the studies that collect such data have not included validated measures of effectuation. The research we are conducting attempts to partially fill this gap by combining an empirical investigation on a large sample of nascent and young firms with the effectuation/causation continuum as a basis (Sarasvathy, 2001). The objectives are to understand the strategies used by the firms during the creation process and measure their impacts on the firm outcomes. Methodology/Key Propositions : This study draws its data from the first wave of the CAUSEE project where 28,383 Australian households were randomly contacted by phone using a specific methodology to capture emerging firms (Davidsson, Steffens, Gordon, Reynolds, 2008). This screening led to the identification of 594 nascent ventures (i.e., firms that are not operating yet) and 514 young firms (i.e., firms that have started operating from 2004) that were willing to participate in the study. Comprehensive phone interviews were conducted with these 1108 ventures. In a likewise comprehensive follow-up 12 months later, 80% of the eligible cases completed the interview. The questionnaire contains specific sections designed to distinguish effectual and causal processes, innovation, gestation activities, business idea changes and ventures outcomes. The effectuation questions are based on the components of effectuation strategy as described by Sarasvathy (2001) namely: flexibility, affordable loss and pre-commitment from stakeholders. Results from two rounds of pre-testing informed the design of the instrument included in the main survey. The first two waves of data have will be used to test and compare the use of effectuation in the venture creation process. To increase the robustness of the results, temporal use of effectuation will be tested both directly and indirectly. 1. By comparing the use of effectuation in nascent and young firms from wave 1 to 2, we will be able to find out how effectuation is affected by time over a 12-month duration and if the stage of venture development has an impact on its use. 2. By comparing nascent ventures early in the creation process versus nascent ventures late in the creation process. Early versus late can be determined with the help of time-stamped gestation activity questions included in the survey. This will help us to determine the change on a small time scale during the creation phase of the venture. 3. By comparing nascent firms to young (already operational) firms. 4. By comparing young firms becoming operational in 2006 with those first becoming operational in 2004. Results and Implications : Wave 1 and 2 data have been completed and wave 2 is currently being checked and 'cleaned'. Analysis work will commence in September, 2009. This paper is expected to contribute to the body of knowledge on effectuation by measuring quantitatively its use and impact on nascent and young firms activities at different stages of their development. In addition, this study will also increase the understanding of the venture creation process by comparing over time nascent and young firms from a large sample of randomly selected ventures. We acknowledge the results from this study will be preliminary and will have to be interpreted with caution as the changes identified may be due to several factors and may not only be attributed to the use/not use of effectuation. Meanwhile, we believe that this study is important to the field of entrepreneurship as it provides some much needed insights on the processes used by nascent and young firms during their creation and early operating stages.

Aspects of Keno modelling

In two earlier papers, an intricate Jackpot structure and analysis of pseudo-random numbers for Keno in the Australian state of Queensland circa 2000 were described. Aspects of the work were also reported at an international conference . Since that time, many aspects of the game in Australia have changed. The present paper presents more up-to-date details of Keno throughout the states of Queensland, New South Wales and Victoria. A much simpler jackpot structure is now in place and this is described. Two add-ons or side-bets to the game are detailed: the trivial Heads or Tails and the more interesting Keno Bonus, which leads to consideration of the subset sum problem. The most intricate structure is where Heads or Tails and Keno Bonus are combined, and here, the issue of independence arises. Closed expressions for expected return to player (ERTP) are presented in all cases.

The subset sum problem in Keno modelling

Aspects of Keno modelling throughout the Australian states of Queensland, New South Wales and Victoria are discussed: the trivial Heads or Tails and the more interesting Keno Bonus, which leads to consideration of the subset sum problem. The most intricate structure is where Heads or Tails and Keno Bonus are combined, and here, the issue of independence arises. Closed expressions for expected return to player are presented in each case.

Institutional investors, risk/performance and corporate governance

Modern portfolio theory suggests that investors minimize risk for a given level of expected return by carefully choosing the proportions of various assets. This study sets out to determine the role of the institutional investor in monitoring risk and firm performance. Using a sample of Australian firms from 2006 to 2008, our empirical study shows a positive association between firm-specific risk, risk-management policy, and performance for firms with increasing institutional shareholdings. The study also finds that the significance of this association depends on the institutional investor's ability to influence management, which in turn depends on the size of ownership and whether the investee firm does not have potential business dealings with the investor. We also find that when firms are financially distressed, institutional investors engage in promoting short-term performance or exit rather than support long-term value creation. The results are robust while controlling the potential for endogeneity and using sensitivity tests to control for variants of performance and risk. These findings add to the growing body of literature examining institutional ownership and the importance of understanding the role of risk-management in the risk and return relation.

Optimal eradication: When to stop looking for an invasive plant

The notion of being sure that you have completely eradicated an invasive species is fanciful because of imperfect detection and persistent seed banks. Eradication is commonly declared either on an ad hoc basis, on notions of seed bank longevity, or on setting arbitrary thresholds of 1% or 5% confidence that the species is not present. Rather than declaring eradication at some arbitrary level of confidence, we take an economic approach in which we stop looking when the expected costs outweigh the expected benefits. We develop theory that determines the number of years of absent surveys required to minimize the net expected cost. Given detection of a species is imperfect, the optimal stopping time is a trade-off between the cost of continued surveying and the cost of escape and damage if eradication is declared too soon. A simple rule of thumb compares well to the exact optimal solution using stochastic dynamic programming. Application of the approach to the eradication programme of Helenium amarum reveals that the actual stopping time was a precautionary one given the ranges for each parameter. © 2006 Blackwell Publishing Ltd/CNRS.

A retrospective evaluation of sustainable yields for Australia's Northern Prawn Fishery

The fundamental aim in fisheries management is to determine an optimal fishing effort for sustainably harvesting from a replenishable resource. The current management objective of Australia's Northern Prawn Fishery is to maximize the long-term net economic return following Australian government policy, resulting in an average recent catch of tiger prawn species of about 1,250 tons only. However, the maximum sustainable catch stated from different studies is around 3,000-4,700 tons. We also evaluated the net profit assuming that there was no buyback scheme in 2005 and the fishing fleet was kept at 89 vessels since 2005 and concluded that 40% more catch on average (2006-2009) and an additional total profit of A$ 17 million ( excluding crew cost) could have been gained in addition to the many millions of dollars of savings in the buyback scheme. These findings have great implications for future management in Australia and elsewhere because there is a grave concern of overfishing worldwide.

The impact of a streamlined funding application process on application time: Two cross-sectional surveys of Australian researchers

Objective: To examine if streamlining a medical research funding application process saved time for applicants. Design: Cross-sectional surveys before and after the streamlining. Setting: The National Health and Medical Research Council (NHMRC) of Australia. Participants: Researchers who submitted one or more NHMRC Project Grant applications in 2012 or 2014. Main outcome measures: Average researcher time spent preparing an application and the total time for all applications in working days. Results: The average time per application increased from 34 working days before streamlining (95% CI 33 to 35) to 38 working days after streamlining (95% CI 37 to 39; mean difference 4 days, bootstrap p value <0.001). The estimated total time spent by all researchers on applications after streamlining was 614 working years, a 67-year increase from before streamlining. Conclusions: Streamlined applications were shorter but took longer to prepare on average. Researchers may be allocating a fixed amount of time to preparing funding applications based on their expected return, or may be increasing their time in response to increased competition. Many potentially productive years of researcher time are still being lost to preparing failed applications.

Setting hospital infection control policy : a decision-making framework incorporating health economics and healthcare epidemiology

Background: Reducing rates of healthcare acquired infection has been identified by the Australian Commission on Safety and Quality in Health Care as a national priority. One of the goals is the prevention of central venous catheter-related bloodstream infection (CR-BSI). At least 3,500 cases of CR-BSI occur annually in Australian hospitals, resulting in unnecessary deaths and costs to the healthcare system between $25.7 and $95.3 million. Two approaches to preventing these infections have been proposed: use of antimicrobial catheters (A-CVCs); or a catheter care and management ‘bundle’. Given finite healthcare budgets, decisions about the optimal infection control policy require consideration of the effectiveness and value for money of each approach. Objectives: The aim of this research is to use a rational economic framework to inform efficient infection control policy relating to the prevention of CR-BSI in the intensive care unit. It addresses three questions relating to decision-making in this area: 1. Is additional investment in activities aimed at preventing CR-BSI an efficient use of healthcare resources? 2. What is the optimal infection control strategy from amongst the two major approaches that have been proposed to prevent CR-BSI? 3. What uncertainty is there in this decision and can a research agenda to improve decision-making in this area be identified? Methods: A decision analytic model-based economic evaluation was undertaken to identify an efficient approach to preventing CR-BSI in Queensland Health intensive care units. A Markov model was developed in conjunction with a panel of clinical experts which described the epidemiology and prognosis of CR-BSI. The model was parameterised using data systematically identified from the published literature and extracted from routine databases. The quality of data used in the model and its validity to clinical experts and sensitivity to modelling assumptions was assessed. Two separate economic evaluations were conducted. The first evaluation compared all commercially available A-CVCs alongside uncoated catheters to identify which was cost-effective for routine use. The uncertainty in this decision was estimated along with the value of collecting further information to inform the decision. The second evaluation compared the use of A-CVCs to a catheter care bundle. We were unable to estimate the cost of the bundle because it is unclear what the full resource requirements are for its implementation, and what the value of these would be in an Australian context. As such we undertook a threshold analysis to identify the cost and effectiveness thresholds at which a hypothetical bundle would dominate the use of A-CVCs under various clinical scenarios. Results: In the first evaluation of A-CVCs, the findings from the baseline analysis, in which uncertainty is not considered, show that the use of any of the four A-CVCs will result in health gains accompanied by cost-savings. The MR catheters dominate the baseline analysis generating 1.64 QALYs and cost-savings of $130,289 per 1.000 catheters. With uncertainty, and based on current information, the MR catheters remain the optimal decision and return the highest average net monetary benefits ($948 per catheter) relative to all other catheter types. This conclusion was robust to all scenarios tested, however, the probability of error in this conclusion is high, 62% in the baseline scenario. Using a value of $40,000 per QALY, the expected value of perfect information associated with this decision is $7.3 million. An analysis of the expected value of perfect information for individual parameters suggests that it may be worthwhile for future research to focus on providing better estimates of the mortality attributable to CR-BSI and the effectiveness of both SPC and CH/SSD (int/ext) catheters. In the second evaluation of the catheter care bundle relative to A-CVCs, the results which do not consider uncertainty indicate that a bundle must achieve a relative risk of CR-BSI of at least 0.45 to be cost-effective relative to MR catheters. If the bundle can reduce rates of infection from 2.5% to effectively zero, it is cost-effective relative to MR catheters if national implementation costs are less than $2.6 million ($56,610 per ICU). If the bundle can achieve a relative risk of 0.34 (comparable to that reported in the literature) it is cost-effective, relative to MR catheters, if costs over an 18 month period are below $613,795 nationally ($13,343 per ICU). Once uncertainty in the decision is considered, the cost threshold for the bundle increases to $2.2 million. Therefore, if each of the 46 Level III ICUs could implement an 18 month catheter care bundle for less than $47,826 each, this approach would be cost effective relative to A-CVCs. However, the uncertainty is substantial and the probability of error in concluding that the bundle is the cost-effective approach at a cost of $2.2 million is 89%. Conclusions: This work highlights that infection control to prevent CR-BSI is an efficient use of healthcare resources in the Australian context. If there is no further investment in infection control, an opportunity cost is incurred, which is the potential for a more efficient healthcare system. Minocycline/rifampicin catheters are the optimal choice of antimicrobial catheter for routine use in Australian Level III ICUs, however, if a catheter care bundle implemented in Australia was as effective as those used in the large studies in the United States it would be preferred over the catheters if it was able to be implemented for less than $47,826 per Level III ICU. Uncertainty is very high in this decision and arises from multiple sources. There are likely greater costs to this uncertainty for A-CVCs, which may carry hidden costs, than there are for a catheter care bundle, which is more likely to provide indirect benefits to clinical practice and patient safety. Research into the mortality attributable to CR-BSI, the effectiveness of SPC and CH/SSD (int/ext) catheters and the cost and effectiveness of a catheter care bundle in Australia should be prioritised to reduce uncertainty in this decision. This thesis provides the economic evidence to inform one area of infection control, but there are many other infection control decisions for which information about the cost-effectiveness of competing interventions does not exist. This work highlights some of the challenges and benefits to generating and using economic evidence for infection control decision-making and provides support for commissioning more research into the cost-effectiveness of infection control.

Does sustainable housing construction provide the home owner with a greater investment return?

Over the past 20 years there has been a considerable push at all three tiers of Government and private industry in Australia to improve the energy efficiency and sustainability levels of residential housing. A number of these initiatives have been voluntary, such as solar power and solar heating rebates, with other mandatory measures being incorporated into building standards and codes. Although the importance of energy efficiency and sustainable materials have been widely conveyed both at the academic and public level, it does not always reflect in the residential house purchase decision by typical house buyers, including residential property investors. This paper will analyse a range of housing markets in Brisbane to determine the investment performance of those markets over the past 3 years to determine any significant differences between new residential suburbs and older residential suburbs where houses have not been constructed to the current energy efficiency and sustainability guidelines. The range of suburbs to be analysed will focus on middle to lower high value suburbs, with a particular focus on residential housing in Master Planned Communities to determine if socio-economic factors and development size and scope have an impact of the purchase and investment performance of sustainable houses in comparison to older housing stock. The paper confirms that the residential property market shows a higher capital return for residential property built under stricter sustainability guidelines than similar located and type of property built prior to the BCA 2004 and older style project type homes erected prior to 2000.

On the (ir)relevance of rates of return measures of economic performance to small boats

A common measure of the economic performance of different fleet segments in fisheries is the rate of return on capital. However, in the English Channel (UK), observed changes in the fleet structure are at odds with expectations given the observed rates of return on capital. This disjunction between expected and observed behaviour raises the question as to the appropriateness of rate of return on capital as a measure of economic performance for small boats whose main input is often non-wage labour. In this paper, an alternative performance indicator is developed based on returns on owner-operator labour. This indicator appears to be of more relevance to small scale boats than the traditional returns on capital, and a better indicator of the direction of adjustment in the fishery.

A model for assessing and correcting construction project health

Abstract Maintaining the health of a construction project can help to achieve the desired outcomes of the project. An analogy is drawn to the medical process of a human health check where it is possible to broadly diagnose health in terms of a number of key areas such as blood pressure or cholesterol level. Similarly it appears possible to diagnose the current health of a construction project in terms of a number of Critical Success Factors (CSFs) and key performance indicators (KPIs). The medical analogy continues into the detailed investigation phase where a number of contributing factors are evaluated to identify possible causes of ill health and through the identification of potential remedies to return the project to the desired level of health. This paper presents the development of a model that diagnoses the immediate health of a construction project, investigates the factors which appear to be causing the ill health and proposes a remedy to return the project to good health. The proposed model uses the well-established continuous improvement management model (Deming, 1986) to adapt the process of human physical health checking to construction project health.