Explorative and exploitative choices in response to initiative failure: Study of entrepreneurs and managers

Abstract

Objective: The objective of the article is to investigate how cognitive framing of initiative failure affects strategic decision-making by entrepreneurs and managers in terms of exploitation and exploration.

Research Design & Methods: A set of hypotheses is tested in a quasi-experimental study using a scenario-based approach and a usable sample of 59 participants. Specifically, the data were analysed using two paired t-tests and a one-way multivariate analysis of variance (MANOVA).

Findings: We draw on prospect theory, behavioural theory, and the threat-rigidity hypothesis to investigate the individual intention to make explorative and exploitative choices in response to initiative failure. The study finds that – under the condition of uncertainty – the experience of initiative failure increases entrepreneurs’ (decreases managers’) willingness to make risky choices and decreases entrepreneurs’ (increases managers’) willingness to make risk-avoidant choices.

Implications & Recommendations: This study differentiates the notion of initiative failure from the broader notion of entrepreneurial failure, showing that it has a stimulating (discouraging) effect on further entrepreneurial (managerial) intentions in terms of attitudes to risk. The study was conducted on a relatively small sample of participants representing businesses in Poland.

Contribution & Value Added: This study extends existing lines of reasoning by considering initiative failure – clearly delineating it from entrepreneurial failure – and testing its effect on intentions to make strategic choices among entrepreneurs and managers. Decision-makers’ responses cannot be explained solely by the behavioural theory and individual factors, as they are also affected by the organisational context.

Keywords

failure; decision-making; entrepreneurship, behavioural theory

References

1. Ajzen, I. (1991). The theory of planned behaviour. Organizational Behaviour and Human Decision Processes, 50(2), 179-211.
2. Álamo‐Vera, F.R., & Suárez‐Ortega, S.M. (2005). SMES’ internationalization: firms and managerial factors. International Journal of Entrepreneurial Behaviour and Research, 11(4), 258-279.
3. Amankwah-Amoah, J., Boso, N., & Antwi-Agyei, I. (2018). The effects of business failure experience on successive entrepreneurial engagements: An evolutionary phase model. Group and Organi-zation Management, 43(4), 648-682.
4. Arend, R.J., Sarooghi, H., & Burkemper, A. (2015). Effectuation as ineffectual? Applying the 3E theory-assesment framework to a proposed new theory of entrepreneurship. Academy of Management Review, 40(4), 630-651.
5. Brinckmann, J., Grichnik, D., & Kapsa, D. (2010). Should entrepreneurs plan or just storm the castle? A meta-analysis on contextual factors impacting the business planning-performance relation-ship in small firms. Journal of Business Venturing, 25(1), 24-40.
6. Bruton, G.D., Ahlstrom, D., & Obloj, K. (2008). Entrepreneurship in emerging economies: Where are we today and where should the research go in the future. Entrepreneurship Theory and Prac-tice, 32(1), 1-14.
7. Cai, L., Guo, R., Fei, Y., & Liu, Z. (2017). Effectuation, exploratory learning and new venture perfor-mance: evidence from China. Journal of Small Business Management, 55(3), 388-403.
8. Calder, B.J., Phillips, L.W., & Tybout, A.M. (1981). Designing research for application. Journal of Consumer Research, 8(2), 197-207.
9. Ciszewska-Mlinaric, M., Obloj, K., & Wasowska, A. (2016). Effectuation and causation: Two deci-sion-making logics of INVs at the early stage of growth and internationalisation. Journal of East European Management Studies, 21(3), 275-297.
10. Cope, J. (2011). Entrepreneurial learning from failure: An interpretative phenomenological analysis. Journal of Business Venturing, 26(6), 604-623.
11. Covin, J.G., & Miller, D. (2014). International entrepreneurial orientation: Conceptual considera-tions research themes, measurement issues, and future research directions. Entrepreneurship Theory and Practice, 38(1), 11-44.
12. Cyert, R., & March, J. (1963). A Behavioural Theory of the Firm. Englewood Cliffs: Prentice Hall.
13. Czemiel-Grzybowska, W., & Skowronek-Mielczarek, A. (2017). Entrepreneurship research in Poland. Technological and Economic Development of Economy, 23(3), 504-519.
14. Dahlin, K.B., Chuang, Y.-T., & Roulet, T.J. (2018). Opportunity, Motivation, and Ability to Learn from Failures and Errors: Review, Synthesis, and Ways to Move Forward. Academy of Management Annals, 12(1), 252-277.
15. Danneels, E., & Vestal, A. (2020). Normalizing vs. analysing: Drawing the lessons from failure to enhance firm innovativeness. Journal of Business Venturing, 35(1), 105903.
16. Dew, N., Read, S., Sarasvathy, S.D., & Wiltbank, R. (2008). Outlines of a behavioural theory of the entrepreneurial firm. A retrospective look at a behavioural theory of the firm. Journal of Eco-nomic Behaviour and Organization, 66(1), 37-59.
17. Espinoza-Benavides, J., & Díaz, D. (2019). The entrepreneurial profile after failure. International Journal of Entrepreneurial Behaviour and Research, 25(8), 1634-1651.
18. Fang He, V., Sirén, C., Singh, S., Solomon, G., & von Krogh, G. (2018). Keep Calm and Carry On: Emotion Regulation in Entrepreneurs’ Learning from Failure. Entrepreneurship Theory and Practice, 42(4), 605-630.
19. Greve, H.R. (2003). A Behavioural Theory of R&D Expenditures and Innovations: Evidence from Ship building. Academy of Management Journal, 46(6), 685-702.
20. Hauser, A., Eggers, F., & Güldenberg, S. (2019). Strategic decision-making in SMEs: effectuation, causation, and the absence of strategy. Small Business Economics, 1-16.
21. He, Z.-L., & Wong, P.-K. (2004). Exploration vs. Exploitation: An Empirical Test of the Ambidexterity Hypothesis. Organization Science, 15(4), 481-494.
22. Hitt, M.A., Ireland, R.D., Sirmon, D.G., & Trahms, C.A. (2011). Strategic Entrepreneurship: Creating Value for Individuals, Organizations, and Society. Academy of Management Perspectives, 25(2), 57-75.
23. Hoskisson, R.E., & Busenitz, L.W. (2002). Market uncertainty and learning distance in entrepreneur-ship entry mode choice. In M.A. Hitt, R.D. Ireland, S.M. Camp, & D.L. Sexton (Eds.), Stra-tegic entrepreneurship: Creating a new integrated mindset (pp. 151-172). Oxford, UK: Black-well Publishers.
24. Hsu, D.K., Wiklund, J., & Cotton, R.D. (2017a). Success, Failure, and Entrepreneurial Reentry: An Experimental Assessment of the Veracity of Self-Efficacy and Prospect Theory. Entrepreneur-ship Theory and Practice, 41(1), 19-47.
25. Hsu, D. K., Simmons, S.A., & Wieland, A.M. (2017b). Designing entrepreneurship experiments: A review, typology, and research agenda. Organizational Research Methods, 20(3), 379-412.
26. Ireland, R.D., Hitt, M.A., & Sirmon, D.G. (2003). A Model of Strategic Entrepreneurship: The Con-struct and its Dimensions. Journal of Management, 29(6), 963-989.
27. Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econo-metrica, 47(2), 263-291.
28. Kahneman, D., & Tversky, A. (1982). Variants of uncertainty. Cognition, 11(2), 143-157.
29. Kauppinen, A., Paloniemi, K., & Juho, A. (2019). Failed firm founders’ grief coping during mentoring: Learning as the single catalyst of their restarting performance narratives. The International Journal of Management Education (in press), 100288.
30. Khelil, N. (2016). The many faces of entrepreneurial failure: Insights from an empirical taxonomy. Journal of Business Venturing, 31(1), 72-94.
31. Kirzner, I.M. (1973). Competition and Entrepreneurship. Chicago, IL: University of Chicago Press.
32. Lin, S., Yamakawa, Y., & Li, J. (2019). Emergent learning and change in strategy: empirical study of Chinese serial entrepreneurs with failure experience. International Entrepreneurship and Man-agement Journal, 15(3), 773-792.
33. Liñán, F., & Chen, Y. (2009). Development and Cross-Cultural Application of a Specific Instrument to Measure Entrepreneurial Intentions. Entrepreneurship Theory and Practice, 33(3), 593-617.
34. Maitlis, S. (2005). The Social Processes of Organizational Sensemaking. Academy of Management Journal, 48(1), 21-49.
35. March, J.G. (1991). Exploration and Exploitation in Organizational Learning. Organization Science, 2(1), 71-87.
36. March, J.G., & Shapira, Z. (1987). Managerial Perspectives on Risk and Risk Taking. Management Science, 33(11), 1404-1418.
37. McCarthy, A.M., Schoorman, F.D., & Cooper, A.C. (1993). Reinvestment decisions by entrepreneurs: Rational decision-making or escalation of commitment?. Journal of Business Venturing, 8(1), 9-24.
38. McGrath, R.G. (1999). Falling Forward: Real Options Reasoning and Entrepreneurial Failure. Acade-my of Management Review, 24(1), 13-30.
39. Meade, A.W., & Craig, S.B. (2012). Identifying careless responses in survey data. Psychological Methods, 17(1), 437.
40. Ocasio, W. (1997). Towards an Attention-based View of the Firm. Strategic Management Journal, 18(S1), 187-206.
41. Read, S., Sarasvathy, S., Dew, N., & Wiltbank, R. (2016). Effectual entrepreneurship. Taylor & Fran-cis.
42. Sarasvathy, S. (2001). Causation and effectuation: toward a theoretical shift from economic inevi-tability to entrepreneurial contingency. Academy of Management Review, 26(2), 243-263.
43. Schoemaker, P.J.H. (1990). Are Risk-Attitudes Related Across Domains and Response Modes?. Management Science, 36(12), 1451-1463.
44. Shepherd, D.A. (2003). Learning from Business Failure: Propositions of Grief Recovery for the Self-Employed. Academy of Management Review, 28(2), 318-328.
45. Shepherd, D.A., & Haynie, J.M. (2011). Venture failure, stigma, and impression management: A self-verification, self-determination view. Strategic Entrepreneurship Journal, 5(2), 178-197.
46. Shepherd, D.A., & Cardon, M.S. (2009). Negative Emotional Reactions to Project Failure and the Self‐Compassion to Learn from the Experience. Journal of Management Studies, 46(6), 923-949.
47. Shepherd, D.A., Wiklund, J., & Haynie, J.M. (2009). Moving forward: Balancing the financial and emotional costs of business failure. Journal of Business Venturing, 24(2), 134-148.
48. Shepherd, D.A., Patzelt, H., & Wolfe, M. (2011). Moving Forward from Project Failure: Negative Emotions, Affective Commitment, and Learning from the Experience. Academy of Manage-ment Journal, 54(6), 1229-1259.
49. Shepherd, D.A., Patzelt, H., Williams, T.A., & Warnecke, D. (2014). How does project termination impact project team members? Rapid termination, ‘creeping death’, and learning from failure. Journal of Management Studies, 51(4), 513-546.
50. Shepherd, D.A., Williams, T.A., & Patzelt, H. (2015). Thinking about entrepreneurial decision mak-ing: Review and research agenda. Journal of Management, 41(1), 11-46.
51. Simon, M., & Shrader, R.C. (2012). Entrepreneurial actions and optimistic overconfidence: The role of motivated reasoning in new product introductions. Journal of Business Venturing, 27(3), 291-309.
52. Stewart, W.H., & Roth, P.L. (2001). Risk propensity differences between entrepreneurs and manag-ers: A meta-analytic review. Journal of Applied Psychology, 86(1), 145-153.
53. Tushman, M.L., & O’Reilly, C.A. (1996). Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change. California Management Review, 38(4), 8-29.
54. Ucbasaran, D., Shepherd, D.A., Lockett, A., & Lyon, S.J. (2013). Life After Business Failure: The Process and Consequences of Business Failure for Entrepreneurs. Journal of Management, 39(1), 163-202.
55. Vershinina, N., Barrett, R., & McHardy, P. (2017). Logics and rationalisations underpinning entre-preneurial decision-making. Journal of Small Business and Enterprise Development, 24(1), 158-175.
56. Yamakawa, Y., Peng, M.W., & Deeds, D.L. (2015). Rising From the Ashes: Cognitive Determinants of Venture Growth After Entrepreneurial Failure. Entrepreneurship Theory and Practice, 39(2), 209-236.