[MUSIC] Effectuation In The Digital World. Tonight, you're inviting all your friends over and you're cooking them dinner. You have two options. One, you choose a recipe in a cookbook and you buy the ingredients for the dish of your choice. Two, you open your fridge and based on what you can find, you imagine a possible dish. What is the most rational choice? Both. It just depends on how you look at the world. In the first case, you set yourself a goal and optimize the means to achieve it. You have a Causal or Predictive Rationality. In the second case, you think about the means at your disposal. In other words, the food already in your fridge. These means have the effect of getting you to invent a new dish. That makes you Effectual. But why has such a strange term, Effectuation become a buzz word in our digital world? The Effectual Rationality Paradigm. Saras Sarasvathy, did her PhD in 1997 on the Rationality of Successful Entrepreneurs. How do they reason? Across the United States, Saras met over 30 highly successful entrepreneurs. She gave them a set of exercises all related to the same problem. Faced with a certain situation in a company, how would you react? The answer was the same across the board, guided by a core question. What means do I have at my disposal? Which they then broke down into, who am I? What do I know? And who do I know? Analyzing the means at their disposal allows experienced entrepreneurs to identify achievable effects. What can I do? They don't think of business as a puzzle with predefined outlines. Nor do they see management as a means to optimize the way the puzzle pieces are arranged. They see business as a patchwork of pieces of fabric gradually assembled together. In other words different stakeholders are gradually enrolled. Collaborators, associates, suppliers, customers, and their user experience etc. No one knows beforehand what the patchwork will look like. The effectuation paradigm was born. With its highly colorful principles, it won over two economics Nobel Prize, like Herbert Simon and other leading thinkers. And it prevailed as a management paradigm in our digital world. Being effectual in the digital world. Effectuation sees entrepreneurship as a social process. It sees the market as a process of discovery, creation and then transformation. The heroes of the digital world are not lonesome cowboys. They have ideas and friends to help make these ideas grow, a garage nearby, and family willing to invest some savings. Internet users then refine the ideas through crowdsourcing. They are enrolled in the financing through crowdfunding, [SOUND] and become actors of viral marketing. These digital heroes don't venture into high risk markets. They go for markets that are uncertain because they don't yet exist. And they have learned from Frank Knight, economics Nobel Prize winner, risk is [SOUND] assessed by calculating return on investment. And [SOUND] uncertainty is assessed with the principle of acceptable loss. Remember the part in the movie, The Social Network, where Mark Zuckerberg resisted his friend Eduardo's suggestions, to make his business profitable with advertising. Well, no. Zuckerberg carried on financing his Apache servers at a loss, until his network reached a critical mass. Critical mass is a network's key resource to build a future market. Only then did he think about a revenue model. Market's invented and reinvented by digital technology and its uses. Sure, there are disruptive digital technologies, but what did Steve Jobs invent? Not the touch screen. Not smartphone batteries, not the GPS. On January 9th, 2007, he presented the iPhone and it's ecosystem, made of iTunes for music and video downloads, and the App Store for applications. Jobs created a new market and new uses by gradually combining technologies, he created the market of connected culture. What did Mark Zuckerberg invent with Facebook? No less than introducing Internet to 2.0 sharing. A network of Internet users has become a means to create new markets in the form of disruptive innovations of the sharing economy. The creation of the quantified-self market, connected objects or clothes and our digital data to create new businesses around health and well being. For existing or even collapsing markets, digital technology enhances value propositions. This is the case of Zara and the textile industry. The company relies on a digital supply chain based on customer data. The offers adjusted daily based on data from shop tills to reorient the activities of the design, production, and logistics and other departments. What is the best rationality to have in a digital world? Without a doubt, Effectual Rationality. But the effectual approach does not exclude causal rationality. It turns to it along the way when questions of optimization become relevant. [MUSIC]
