“If we tried to think of a good idea, we wouldnt have been able to think of a good idea. You just have to find the solution for a problem in your own life.” is rightly stated by Brian Chesky, the co-founder of Airbnb. On finding the solution to such problems, the entrepreneurial mind sets out to design a business plan, conduct a SWOT analysis, and aims towards achieving the established goals. On the other hand, as indicated by one of the greatest scholars in the subject field, Saras Saraswathy explains how some entrepreneurs have a pragmatic approach and employ creative ways of using the limited resources available to them and design pioneering products that disrupt the markets.
Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal fastest, cheapest, most efficient, etc. alternative to achieve the given goal (Sarasvathy, 2008). The causal approach explains how certain entrepreneurs start out their journey with the goal in mind and then find pathways in trying to achieve those goals.
In contrast, Effectual rationality begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with. (Sarasvathy, 2008). The concept of effectuation is the opposite, the entrepreneurs have a limited number of resources with them and use their creativity to channelize these resources into disruptive innovation. The illustrations (Sarasvathy, 2008) helps in visualizing the two theories.
The causation principle is a process in which the end is envisioned at the beginning and the entrepreneurs exploit the knowledge which they have while effectuation principle is a process in which the entrepreneurs use the trial and error method to take advantages of changing environment settings in which potential losses are affordable (Chandler et al., 2011). Rational choices are made during the causation process using all the information available and several alternatives are identified and analysed whereas the effectuation process focuses on what possible paths can be created with the aid of available means. According to Saras Saraswathy, causation is a logic of prediction: To the extent we can predict the future, we control it and effectuation is the logic of control: To the extent we can control the future, we do not need to predict it (Sarasvathy, 2001). There are no inferences drawn on which approach is better, however, these two approaches of causation and effectuation are not entirely exclusive.
On careful reading of Travelodge UK case study (Travelodge, n.d) and critically analysing the various aspects, it is observed that the principles of causation were followed. By 1970, Lord Forte, a renowned hotelier and restaurateur, had already climbed the top of the hotel ladder by acquiring Trust Houses (Cowe, 2007). Recognizing the need for budget accommodation in the UK, he managed to establish a worldwide empire of hotels and restaurants by launching the first lodge in 1985 at Barton under Needwood in the heart of England . Travelodge now has over 200 properties offering more than 10,000 bedrooms in UK and Ireland (Travelodge, n.d). It understood the requirement of customers belonging to different groups and provided solutions to satisfy the ever-rising customer needs. Adopting managerial thinking and keeping the goal of providing budget hotels to different customer segments in focus, Travelodge caters to the needs of families and friends and business users alike. It provides good amenities for excellent value of money through lodges on motorways, in city centres and near tourist attractions facilitating the checking in and out process, an environment suitable for family and friends who travel together. At the same time, it also accommodates the needs of people who travel for business purposes by providing essential facilities like telephones, fax machines and meeting rooms. Such lodges are often located at key business locations. Travelodge hotels often have good restaurants and in cases where they do not, they strategically position themselves near first-class restaurants using the given means (in this case, existing restaurants) which are already established to their advantage.
To gain competitive advantage, Travelodge has embraced the internet revolution and strived to increase its market share and revenue making it easier for customers to book rooms via its internet site. It also sent out direct mails and saw excellent results. It is now using its database to target loyal customers by providing them with exclusive offers. Travelodge ensured it has a top quality booking system in place by centralising all its inventory and having a dedicated reservation sales centre. Travelodge adapted to the ever-changing environment and in a way predicted the increase in utilization of the internet over time and controlled it with the aid of given means to achieve the goal of increasing market share. This strategy enables Travelodge to keep competitors at bay and remain a market leader with 25% market share and it has therefore meticulously positioned itself in the highly competitive industry. The market opportunity of lack of budget hotels was identified and the latent market was captured by addressing the needs. Lord Forte had catering in his blood and was always eager to set up his own firm (Cowe, 2007) and had predetermined goals at the start of the venture. His decision to buy the US Travelodge brand and establish the same in the UK is causal in nature as he chose to utilize his best means (his skillsets as a hotelier, the established Travelodge brand, Little Chefs) to achieve the goal of providing budget hotels in the UK. The announcement of building a hotel in the heart of Glasgow and aiming to have it ready before the start of the Commonwealth Games in July 2014 highlights how Travelodge wanted to capitalize on the large inflow of tourists and focused on expected returns during the Commonwealth Games. The course of action followed by Travelodge indicates that the stage of the venture when it started was growth as Lord Forte had bought a brand and not started it himself. He assumed the role of a great general seeking to conquer fertile lands (Sarasvathy, 2008). Being a great entrepreneur requires one to use both the theories effectively depending on the situation. This is demonstrated by Lord Fortes use of the Bird in Hand principle at the start of the venture when he utilized the means available to him (attaching Travelodge to many of his Little Chefs as Little Lodge) to provide for the customers need of budget hotels. To maintain leadership in the hotel industry, Travelodge would have to constantly adapt to the changing environment and perpetually look for ways to innovate and develop new services which add value to the overall customer experience.
From an in-depth analysis and critical assessment of the ICEHOTEL case study, it can be inferred that effectuation business strategy has been employed through its existence. Not wanting to spend his life working for a big organization, Yngve Berqvist, the founder of ICEHOTEL, channelized his passion for river rafting and used his skills to set up a rafting business and gradually expanded it to 40 summer employees and 30 boats. Berqvist resigned from his mining job and had to find an alternative source of income during winter as it was impossible to raft on the frozen river. He was aware of several Japanese tourists flocking to Alaska to watch the Northern Lights. He used the information available with him and travelled to Sapporo and Hokkaido in Japan for the Snow Festivals in 1988, where he met an ice sculptor from Asahikawa. Partnering with him, they decided to have a winter ice-sculpting workshop in Jukkasj?rvi, Sweden which received a great deal of press coverage (Saraswathy and Read, 2007). He used the 4th principle, crazy quilt and built a partnership rather than competing. He introduced an innovative idea to Sweden with little investment (ice is easily available in Sweden). A great entrepreneur should be willing to face abrupt adversities with a positive mindset in order to succeed. During one of the exhibitions, it started raining in the morning just before the tours would start. Berqvists employees were trying to protect the ice art with sheets and it was then he realized that something new could be built once it would be destroyed as natural ice could not be preserved. He was not afraid of this unpleasant surprise and worked towards leveraging contingencies in his favour. Thus displaying the implementation of the 3rd principle of effectuation, leverage contingencies.
Employing the skills he developed working in the ice sculpting business, he introduced ICEHOTEL which would be sculpted from the ice in Torne River. Berqvist had a well-established network and his friends in the Swedish tourism board introduced him to Sakata, the owner of a Japanese travel Agency, Northern Express and they partnered to provide unique experiences to Japanese tourists traveling to Sweden. Berqvist started with his means, demonstrating the use of the 1st principle of effectuation. He took up river rafting as a hobby in an environment familiar to him, he exploited his pre-existing knowledge of the Japanese tourists interested in watching the Northern Lights to his advantage and used his social circle to get introduced to Sakata which boosted his ICEHOTEL business. With his distinct set of skills, knowledge and relationships, he was able to offer something innovatively disruptive to the world. He managed to transform peoples perspective of the Arctics dark, cold winter into an eccentric element it had to offer. The idea of ICEHOTEL emerged when a group of foreign tourists approached Berqvist to use the cylindrical igloo as an accommodation. He worked on the principles of affordable loss and had nothing to lose in the process. He took the plunge and cultivated this opportunity. On receiving the idea of partnering with a liquor company, Berqvist set out to expand his crazy quilt by developing a functionalist perspective in this direction. He knew it was highly profitable and could not see why Absolut would not want to partner with ICEHOTEL (Saraswathy and Read, 2009a). Berqvist was not disheartened when the marketing manager of Absolut did not answer his calls, instead, he used his available means and at a relatively low cost (following the principles of not risking more than what could be afforded), he had the sculptors cut out the ICEBARs doorway in the shape of an Absolut bottle (Saraswathy and Read, 2009a). ICEHOTEL was already serving Absolut vodka cocktails and it also placed the actual Absolut bottles on the shelves in the bar made of ice. Using his network, he teamed up with the Swedish Tourist Board and issued a press release on his evolved venture which immediately gained extensive media coverage all over the world. He was thrilled to receive a call from Absoluts marketing manager and formed an agreement with them stating that buy-in is better than sell-in. Through his never-ending quest of fruitful partnerships built on mutual benefits, he succeeded in creating a strong brand image. He always had his vision in mind, held strongly to his roots and insisted on promoting his beloved town Jukkasjarvi as a part of the deal with Absolut ad promotions. There were several other partnerships along the way, including Fritz-Hansen, SAAB, Philips, S-J rail service, and SAS, along with several regional hotels (Saraswathy and Read, 2009b), including partnership with G?vle Energi (with the goal of becoming CO2 negative) and the local church (clergy were officiated to the Ice Church, which would be built every year where people from all over the world would come to get married and several children would be baptized). A great entrepreneur is one who strongly believes in his vision and works towards it relentlessly. ICEBAR Stockholm was a risk Berqvist was willing to take and within six months ICEBAR was the best seller of Absolut vodka in all of Stockholm. He believed in his vision even when others did not. A commodity like ice became Swedish Laplands most successful exported goods. ICEBAR takes approximately six weeks to build and in an effort to maintain the relationship with key stakeholders, the ice sculptors, the ice sculptures are replaced with new ones every six months (Saraswathy and Read, 2009b). ICEHOTEL is truly an exemplary example of an organization that is evolutionary yet revolutionary, negative as well as positive, different yet similar and unsustainably sustainable (Pinto, 2016). It is regarded as one of the most amazing hotels on the planet (National Geographic Megastructures documentary, 2006).
From the above discussion, it is evident that Travelodge implemented the Causation or linear business strategy while ICEHOTEL implemented the Effectuation business strategy. However, it is to be noted that the best entrepreneurs use both the strategies depending on the circumstances prevailing at the given point of time and are capable of using them well (Sarasvathy, 2008). In the case of ICEHOTEL, it is observed how all the principles of effectuation are accentuated during different stages of the venture. Yngve Berqvist began his entrepreneurial journey with the three means: Who he was by exploiting his rafting skills, What he knew by visiting Japan and partnering with the ice sculptor and Whom he knows by using the power of his network to build key partnerships. He thought on the lines of affordable loss, his venture did not require heavy investments and he invested only what he could afford to lose. When faced with the adversity of the ice sculptures melting just before the event, he took it positively and thought innovatively, ultimately launching the phenomenal ICEHOTEL. Through and through he endeavoured to build strong reciprocal relationships with different industries working on the theory of functionalist perspectives. He initiated great partnerships with the ice sculptors, Absolut, the local church, G?vle Energi and several others. In contrast, Lord Forte had catering in his blood and was in the industry since he was 21. He always knew he wanted to set up a firm of his own and keeping this goal in mind, he worked towards achieving it. He acquired the Travelodge US and established it in Britain. He focussed on being the leader in market and maximize market share by offering deals which were much better than those offered by his competitors. He paid attention to serving the needs of different customer segments and provided solutions to them in the form of budget hotels to suit distinct needs. Forte looked for opportunities and launched a hotel in Glasgow to attract tourists who were visiting for the Commonwealth Games. He believed in controlling the future to the extent he could predict it. To conclude, all entrepreneurs behave differently and use varied strategies depending on the resources, skills and knowledge available to them and there is no defined path to achieving ones goals. If means are available, one can manoeuvre such means towards innovation which transforms the structure of the industry. Neither of the business strategies (causation or effectuation) is superior to the other, the approach one may adopt varies with circumstances.