Doctoral Dissertation Defense: Ada Gonzalez

December 13, 2019

Ada Gonzalez (from left), Alison Buck, Ph.D., Norman St. Clair, Ph.D., and Michael Forrest, J.D.

Ada Gonzalez defended her dissertation “Understanding Effectuation Theory as an Entrepreneurial Cognitive and Behavioral Process in Firm Creation and Expansion to Create Local, Contextual Knowledge in Morocco” on Dec. 11 in the Student Engagement Center. Her dissertation committee co-chairs are Dr. Norman St. Clair and Dr. Alison Buck, and committee member Dr. Michael Forrest.


Understanding Effectuation Theory as an Entrepreneurial Cognitive and Behavioral Process in Firm Creation and Expansion to Create Local, Contextual Knowledge in Morocco

Ada A. González
University of the Incarnate Word

Focus of the research. The purpose of this two-year case study was to explore and understand the entrepreneurial cognitive processes of American entrepreneurs in the creation and expansion of a firm in the host country of Morocco. By identifying how an entrepreneur and later the expansion team used the five principles of effectuation theory (Sarasvathy, 2001) and other cognitive processes and strategies in the creation and expansion of a firm in a foreign country, the study contributed to the body of knowledge of innovative and socially-embedded entrepreneurship and effectuation theory in entrepreneurship. The study illuminated the ways that findings could be utilized to build local, contextual knowledge for optimum implementation of future schools. It also responds to the need to work with effectuation theory with businesses of various sizes and ages, such as small and medium enterprises (SMEs) (El Guili, & Ferhane, 2018) and the need for field studies (Arend et al, 2015).

Research Method. The research methodology was framed around the research questions: 1) how did entrepreneurs use the five principles of effectuation theory in the creation of a firm in a foreign country and how did these principles contribute to or hinder the creation of a business venture in a developing country; and 2) what entrepreneurial processes and strategies were employed by the owner/director and expansion team in the expansion of the business to a second site in Rabat, Morocco and how can these build local, contextual knowledge for optimum implementation of future schools?

This study was a qualitative case study with narrative inquiry and heuristic inquiry design. The inductive methodologies were best suited for the exploratory intent and nature of the study. Narrative analysis allowed the researcher to identify the entrepreneurial processes and related cognitive constructs and behavioral evidence within the unit of analysis called stories.

The heuristic inquiry design (Moustakas, 1990) aligned with the study because it required the researcher “be open, receptive, and attuned to all facets of one's experience of a phenomenon, allowing comprehension and compassion to mingle and recognizing the place and unity of intellect, emotion, and spirit” (p. 3). As a participant-researcher, there was an opportunity to maneuver issues of pre-understanding, role duality, and the geo-political environment in which we lived during the study to co-create a design model for future work.

Recordings and transcriptions of one-on-one interviews, meetings, contents of field and research journals, personal journals, photographs, business plans, and the draft pages of an autobiographical book were the data sources used to discover the decision-making strategies and processes in the creation of an American school in Fez, Morocco (Phase 1) and the expansion of the enterprise to Rabat, Morocco (Phase 2).

Research results/findings. Narrative and heuristic data analysis resulted in 70 episodic or pragmatic cases related to the five principles of effectuation theory and five other cognitive and behavioral strategies. Over half of the cases were related to the effectuation theory literature: means orientation, entrepreneurial agency, co-creating relationships, leveraging contingencies, and affordable loss. The other categories emerged from the cases and were entitled interactive socio-cultural dynamics, key constructs of the entrepreneur, faith, uncertainty, and trust. These categories were further distilled into five themes for the purpose of understanding the connections between the categories and providing insights related to the theoretical framework. The themes are persistence and resilience, shifting assets, managing ambiguity, creative and collective action and weighing options/developing criteria.

The most prominent and useful principles utilized in starting a business was considering available means, or the examination by the entrepreneur of who they are (skills, education), what they know (experience) and who they know (friends, family, etc.) as a means of gathering assets.

This principle was highly effective in the business launch. It was equally relevant when the business expanded, but because the entrepreneur now had established connections with a network of Moroccans and expatriates from various countries, the human capital was more impactful than it was during the start-up period. It was a collective use of means orientation.

The second most active principle utilized was agency of the entrepreneur. Without prediction models available to the nascent business founders, the entrepreneur acted on their own accord to seize opportunities prior to launch and the first years of operation. Leveraging contingencies, or the principle of turning unpredictable events into a benefit in conditions of uncertainty, is a prevalent principle in this study. Given the unknown geopolitical infrastructure conditions in Fez, the limited familiarity with Moroccan families and potential clients and the lack of language fluency in the early years, there were potentially destructive business and personal incidents. This occurred to a lesser degree in the expansion phase in the school in Rabat because the Moroccan staff defended the initiative taken by the entrepreneur. In these damaging or challenging instances of unpredictability, the co-founders and later, the expansion team were able to weather the difficulty by using another effectuation principle, strategic partnering. By reaching out to influential persons or entities, like the U.S. Ambassador or the owner of a Canadian school who owned a school building in Fez, a shift occurred, and failure was averted.

Strategic partnering is defined as obtaining pre-commitments with parties the entrepreneurs can trust. At the outset of the venture, securing pre-commitments from service delivery partners were easily obtained, but client pre-commitments were not possible until just before the school opened. The clients, who are from a high context society, needed evidence of the trust-worthiness of the school owners and staff before they would commit. The “who I know” aspect of the means orientation principle was actively linked to the pre-commitment facet of the expression of strategic partnering principle. In phase two, the entrepreneurs and the expansion team formed partnerships with people they knew and thought they could trust. Because the expansion team included more Moroccans than in the initial start-up, it naturally multiplied the possible partners and pre-commitments, but continued to be emerging commitments.

The cultural dimension of collectivism in Moroccan culture explains how strategic partnering occurs in Morocco. Elements of trust is why pre-commitments are rare and commitments “as we go” are prevalent. Members of the expansion team knew key business associates with the ability to make certain transactions possible, in terms of authorization and building ownership and use.

The principle of affordable loss, or the identification of how much the entrepreneur can afford to lose and how to minimize loss, was the least relevant principle in effectuation theory in this study. While the business plan was pre-written, there was no set amount they were willing to lose existent in the first year. In the expansion project, funds from one school covered expenses at the second school when it was underperforming financially.

The researcher found five new corollary themes woven into the storytelling to the implicit and explicit application of effectuation theory. The role of faith and creative and collaborative solutions heavily influenced how well the individuals and, later the team, managed sudden and urgent change, or how they leveraged contingencies, a principle of effectuation theory.

An important entrepreneurial process grew from financial and institutional threats. It is linked to the affordable loss principle in that finances were drained and there was an opportunity to re-invest or divest. The team developed a method of decision-making and action. First, it listed the options available to them at the time, then the group articulated the ultimate goal. Based on the goal, the group listed, sorted and weighed the criteria. After sifting the options through the criteria, they determined their actions. This process occurred twice and led to the final decision to divest. This decision-making system became a critical tool system for examining affordability or resource allotment. Relatedly, the affordability loss concept was amplified to include non-financial aspects, such as trust of clients and employee loyalty.

Conclusions from Research. Ultimately, we learned that cultural context, original aspirations, and social/human/spiritual capital ground the entrepreneurial decision-making experience and are entwined with the principles of effectuation. Elements of effectuation theory existed in the entrepreneurial logic of the nascent venture in Fez, Morocco, in 2004 and existed to a greater degree in the expansion process in Rabat, Morocco, in 2017.

In phase one, the school owners implicitly used the principles given certain conditions of uncertainty. Market entry niche of their business, the geopolitical environment, entrepreneur’s assets and limited partnerships framed the way in which these were expressed and the impact they had on the business. While means orientation and partnerships were critical elements in the entry to the market, the principle of affordable loss was absent.

In phase two, the expansion team with the researcher's involvement, explicitly employed the five effectuation theory principles given the new market conditions of uncertainty. The bureaucratic shift in the geopolitical landscape of Morocco, the collective assets of the team and creative solutions influenced the decision-making and entrepreneurial actions taken and ultimately, impacted the business. Means orientation and strategic partnerships were now reflected as a collective asset inventory and network. Leveraging contingencies were not temporary situations, but a constant and therefore, necessitated a concerted response to failure or threat.

The prior experiences of the entrepreneurs and the Moroccan family on whom they relied were critical in the development of the school. This supports Engle’s (2017) extended effectuation theory by reformulating one of its most dominant assumptions by showing that the foundation of personal and professional experiences contributes to the development of effectual thinking.

Emerging streams of effectuation research provide consistent findings that entrepreneurs create firms as artifacts to fulfill their generalized aspirations by exploiting all means on hand and dynamically adjusting their goals (Read et al., 2016). This is true of the co-founders who had altruistic aspirations for establishing the school. They used what they knew and who they were, as professional educators and managers, to build a venture.

Research on human and social capital of entrepreneurs (Estrin, Mickiewicz, & Stephan, 2016; Kasouf, 2015) suggests that the impact of human and social capital is moderated by entrepreneurs’ expressive style, a psychological attribute responsible for the interpretation and perception of their capabilities.

This study tells us that principles of effectuation were warranted and effective in the start-up stage and a blended approach of effectuation and causal logic was necessary in the expansion phase. This supports findings by Laine and Galkina (2017), Reymen et al. (2015) and (Dew, Read & Sarasvathy (2017).

The deliberations around the process to list options-set goal-develop criteria as a decision-making process is pursuant casual logic or a goal-driven heuristic. The deliberation moved away from effectual thinking towards causal logic. The conditions around lack of authorization and strained finances forced the team to examine entrepreneurial actions. This situation mirrors what Laine and Galkina (2017) studies show that when perceptions of institutional uncertainty change, they effect the intensity of effectuation and causation logic. Further, the combined process demonstrated what Reymen et al. (2015) argued that entrepreneurs will switch between effectuation and causation depending on contextual factors, such as the level of environmental uncertainty, resource positioning, and stakeholder interaction. The level of uncertainty was relatively high, financial resources were low and stakeholders is the form of committed team members was high. These conditions are in line with research by York and Venkataraman (2010) and Dew and Sarasvathy (2007). They purport that uncertainty in environmental opportunities is the key driver for innovation and that causal principles get used more often once the decision about existing artifacts like products, services, markets, or technologies are made.

The significance of this research lies in its ability to illuminate some notions of our academic understanding of how entrepreneurs navigate the ambiguity of creating and growing a business and also the ways that we can amplify that understanding by including affective notions of entrepreneurship, such as fear, trust and faith. These concepts underlie most of what surfaced to the level of themes to be linked to effectuation theory, innovative entrepreneurship and social embeddedness of entrepreneurship.

The other contribution made by this study is the interrelationships of the principles of effectuation logic and, also, how cultural representation systems played a role in the expression of those decision-making strategies and actions. The influence of cultural actors, like Moroccan parents, American and Moroccan teachers, school alumni and even the Prince of the Kingdom of Morocco, is socially constructed and considered in entrepreneurial actions. How affordable loss is conceived of is not limited in a high context environment by profit alone. Certainly, original aspirations are as “contagious” as the circle of the co-creation of partnerships.