Exploring the applicability of effectuation theory in distressed venture environments

Abstract

Orientation: Once appointed, business rescue practitioners and turnaround professionals are faced with critical decision making of whether a distressed venture contains an opportunity as judged by reasonable prospect.

Research purpose: This study investigated and explored the application of ‘effectuation theory’ principles and/or causation elements to the distressed venture opportunity (DVO) decision making.

Motivation for the study: Effectuation is applied by experts to an entrepreneurial opportunity, and it was important to investigate whether effectuation and its principles would inform practitioners for better decision making when evaluating a DVO.

Research design, approach and method: A qualitative study was conducted with 15 business rescue practitioners (BRPs) from the Gauteng province. The data were collected through in-depth semi-structured interviews and a thematic analysis was used to analyse the data.

Main findings: This study reveals that all five effectuation principles and some causation elements are applicable to the DVO judgement. The findings indicate that both effectuation and causation are applied in a complementary manner depending on the context.

Practical and/or managerial implications: This study highlights the importance of applying effectuation and causation elements for practitioners to achieve success. By applying both logics, BRPs can build resilience in their strategies, be creative in adapting to solutions as they arise and engage with stakeholders in the business rescue process.

Contribution and/or value add: This study extended the application of effectuation theory to distressed venture environments, offering insights into how practitioners can make better decisions when evaluating a DVO.