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Effectuation: 7 Start-Up Lessons For HR

Effectuation: 7 Start-Up Lessons For HR


Effectuation, as opposed to a more conventional ‘Causation’ approach, provides a way of thinking about business decision-making under conditions of uncertainty and low-predictability.


Globally, start-ups continued to grow rapidly despite the COVID-19 pandemic, with an estimated 4 million+ new businesses set up in 2020, and Venture Capital funding of start-ups reaching $300 billion1 . The Indian market has caught fire in the last few years, with over 41,000 start-ups generating 470,000+ jobs reported and 38 ‘unicorns’ each valued at over $1 billion2 as of December 2020, making India the world’s third largest start-up ecosystem.

 

What are some characteristics that define successful start-ups?

 

Is there a pattern to the mindset of entrepreneurial organisations?

 

What can HR learn from this dynamic and fast-growing business segment, that is driving economic growth and employment for millions?

 

Effectuation – Mapping the Entrepreneurial Mindset

 

A seminal and widely accepted framework that describes key entrepreneurial characteristics, is the “Effectuation” model, developed by Prof. Sarasvathy at the Darden University3 . It outlines five principles that are core to the entrepreneurial spirit:

 

 

Effectuation’s 7 Takeaways for HR

 

So, what are the implications of the Effectuation principles for HR?

 

1. Strategic & Market Focus

 

Knowing your customers and designing your products to their needs, should be a starting point for HR, as much as any entrepreneurial venture. Visualising HR as a core ‘product plus service’ offering, and the organisation and employees being served as HR’s clients, can create fresh ways of understanding and addressing people and talent-related aspects of a business.

 

HR’s role includes envisioning core vs. context aspects of its offerings, clearly identifying and targeting primary market segments, and prioritising and ensuring rapid adoption of its services, as well as ‘stickiness’ and repeat business from its customers. HR’s Bird in Hand approach would be to establish a clear understanding of business capabilities and needs, define people priorities and steadily build the ability to refine and scale.

 

2. Business Acumen & Market Understanding

 

Business knowledge has been touted as a core HR capability for a while now. However, for a start-up, this understanding can be literally life-or-death knowledge. A deep appreciation of an organisation’s business and market, as well as its competitive landscape and critical financial and operational levers, is essential knowledge for HR professionals. Whether it is the ability to determine Affordable losses, such as the impact of a new performance management system, or taking a decision on making Lemonade, such as creating an advisory solution leveraging HR functional expertise, in-depth knowledge of the business and stakeholder impact of HR decisions is critical.

 

3. Agility & Resilience

 

HR will need to shed its stereotyped image of being overly-procedure and policyoriented, and slow to decision making. Today’s HR function and HR professionals need to be responsive to both employee and market changes, as well as systemic and macroeconomic changes in the wider environment. The Lemonade and Affordable loss concepts require HR to lay out core, nonnegotiable operational groundrules, relating to values such as ethics or inclusion, while being able to rapidly spot and adapt to changes in an increasingly VUCA environment. From defining employee compliance policies, through to new talent sourcing models and organisation structure and systems, HR’s role is key in creating robust yet, flexible and anti-fragile business capabilities.

 

4. Ownership & Collaboration

 

HR will increasingly be expected to be responsible for solving business problems, rather than be restricted to just peoplerelated matters. The ability to continuously reimagine and redesign business models and processes defines successful start-ups. This requires thinking and collaboration across traditional organisational silos, to capitalise on the ‘white spaces’ that offer Lemonade opportunities such as leveraging client partnerships for employee benefits, or to enable weaving the ideal Patchwork Quilt, such as working with data security solution providers to ensure comprehensive employee privacy. HR’s seat at the leadership table requires that HR professionals take on responsibility, and even proactively forge new partnerships, relating to functional areas and processes within the purview of internal and external stakeholders.

 

5. Learning Bias & Technology Orientation

 

Learning orientation and an active curiosity to absorb and implement the latest developments across various fields - technology, science, arts and humanities – into one’s own domain are the hallmarks of highperforming start-ups. HR needs to push beyond its comfort zone into cross-disciplinary learning and solutioning. This implies encompassing multiple domains including design, behavioural and data science, and the entire gamut of emerging technologies from AI and ML through to Robotics and Virtual & Augmented Reality. Whether developing a customised Patchwork Quilt such as using specialist HR talent sourcing technology provider, or creating a new flavour of Lemonade, such as enhancing Employee Experience through sentiment sensing and predictive analytics, HR professionals require a strong blend of soft and hard skills to fully capitalise on the opportunities offered by new-age technologies.

 

6. Execution Excellence & Ambidexterity

 

Start-up organisations require the ability to articulate a vision and strategy, as well as to operationalise and execute flawlessly to a plan. Both are essential, however, the lines between strategy and execution for start-ups are more fluid, with operational discipline having an edge in terms of aligning with the Pilot-in-the-plane mentality required to focus on consistent, reliable delivery of services to customers, or the Affordable loss assessment, needed to make a rapid course correction. HR professionals need to develop this ‘Ambidexterity’ – the ability to quickly cycle through strategy and execution to respond to both basic hygiene as well as higher-order needs of employees.

 

7. Culture & Values Stewardship

 

Leadership and founders play the primary role in formulating and messaging a start-up venture’s values and culture. Their role is vital in reinforcing and socialising these aspects, while operating in rapid-change environments through consistently demonstrated behaviours and actions. HR’s role as a custodian of culture and values, assumes greater significance for start-ups, as it holds the entire organisation - from leadership to frontline employees - accountable for the ‘right ways’ to do business. HR is responsible for ensuring the clear focus of the Pilot-in-the-plane, whether outlining operating guidelines such as recognition for demonstrating ethical behaviour, or in establishing employee rewards to celebrate risk-taking and failure to reinforce an organisation’s make Lemonade from lemons philosophy.

 

Effectuation, as opposed to a more conventional ‘Causation’ approach, provides a way of thinking about business decisionmaking under conditions of uncertainty and low-predictability. Adopting this set of principles can equip HR, as well as all organisational functions, with a flexible and heuristic problemsolving framework to effectively meet the challenges of an increasingly volatile business environment.


 

References:

 

1. ‘Global VC Report 2020’ – Crunchbase Global VC Report 2020: Funding And Exits Blow Past 2019 Despite Pandemic Headwinds – Crunchbase News

 

2. ‘What Economic Survey 2020-21 says about India’s Start-ups’ – Economic Times - https://economictimes.indiatimes. com/tech/start-ups/what-economicsurvey-2020-21-says-about-indias-Startup-ecosystem/articleshow/80586774.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

3. ‘Effectuation.org website’ - Effectuation - SOCIETY FOR EFFECTUAL ACTION

 

 

 

Raj Dharmaraj has three decades of experience in the IT industry, spanning multiple roles in consulting, business development, enterprise transformation and HR. He currently leads the regional HR Strategic Deals team for a Fortune 200 IT solutions provider. He can be reached at [email protected] or https:// www.linkedin.com/in/rdharmaraj/

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