an action theory of entrepreneurship michael frese justus liebig univ. giessen, interdisciplinary...

An Action Theory of Entrepreneurship

Michael Frese

Justus Liebig Univ. Giessen,Interdisciplinary Research Unit for Evidence-

Based Management and Entrepreneurship

and London Business School

Outline

• Action theory introduction

• Applications: • Active planning• Learning from errors• Training

Goal of Action Theory

• Action as the core of entrepreneurship

• Integration

• Sophisticated theory that explains entrepreneurial actions and, thereby success

The Giessen Amsterdam Model of Entrepreneurial Success (Revised)

CGoals

DAction

EEnvironment

ASuccess

Person-Traits-Orientations-Cognitive ability

Human Capital-Experience-Expertise-Learning-Knowledge-Skills

National Culture

Dimensions of Action Theory

•Action sequence: Goals, Information search (orientation), plans, monitoring, feedback

•Action structure: Level of regulation from conscious (idea level) to automatic (physical)

• Action oriented mental model

The Action Sequence

Information search

Planning

Monitoringof execution

Feedback

Frese, M., & Zapf, D. (1994). Action as the core of work psychology: A German approach. In H. C. Triandis, M. D. Dunnette, & L. M. Hough (Eds.), Handbook of industrial and organizational psychology (2 ed., Vol. 4, pp. 271-340). Palo Alto, CA: Consulting Psychologists Press

Action sequence

Goal development(Decision)

Goal development

Plan decision)

Carrying out

Processing feedback

• Goals as anticipated results – motivator of action• The better visualized, the more motivation• The less worrying and the less fantasizing about the goal, the better• The more thinking about discrepancy between fantasy and reality, the better• Difference between wish and goal (regulatory function)• Difficulty (Locke & Latham)

The Action Sequence

Information search

Planning

Feedback

Information Search, Model, Prognosis, and Signals

•Level of decomposition

•Active diagnostic information seeking

• Model of the environment

• The more signals in a model, the better

•Detailedness (= specificity of goals in goal setting theory, cf. Locke & Latham)• Plan: Bridge between thought and action

• Plan producing implementation intention (Gollwitzer & Heckhausen)

• Costs of pre-planning• The difficulty of disengagement, once a plan is put into effect

•Detailedness and proactiveness

• Detailedness: Means I think of many aspects of what I need to do, including back-up plans• Proactiveness: I think of long-term issues and prepare myself for future opportunities and problems (anticipation range)

Why Are People Active?•An ontological given (orientation reflex, curiosity, mastery motive)•Goal directed behavior is active because it produces new environments (goal refers to something that does not yet exist)•Active approach leads to:

•better learning •better handling of errors•to an action oriented mental model•better knowledge of the situation (exploration)•better survival (including sexual procreation and through active work)

Why Are People Active -2-

•Active approach in learning: deliberate practice – boundary lines of your skills•New goal development reduces monotony and allows new use of conscious level of regulation

Informal Planning of Business Owners- Business owners work in an unstructured

situation planning more necessary thanfor employees

- Recently scepticism towards planning; rather intuition, experimentation, improvisation

- Argument: planning takes too long and producesa certain amount of rigidity, environment too erratic (formal planning?)

- Counterargument: Not necessarily contradiction:intuition depends on stored, routinized plans(expertise research); explicit conscious planning may help in experimentation

Positive Functions of Informal Planning• Translates goals into actions and to mobilize extra effort

(Gollwitzer, 1996), • Amplifies persistence and decreases distraction (Diefendorff & Lord, 2004), • Helps to stay on track and ensures that the goal is not lost or forgotten (Locke & Latham, 1990)• Leads to focus on priorities (Tripoli, 1998), • Reduces load during actions because actions are planned

beforehand (actions run more smoothly), • Motivates owners to deal with problems, • Prepares owners to have Plan B if something goes wrong

Positive Functions of Proactive Planning• Prepares for future opportunities and problems now• Leads to earlier presence in important markets• Makes better use of scarce resources • Changes and influences the environment • Leads to original and often unusual solutions – not copies of others• Helps a person to receive more and better feedback than

when using a reactive or passive approach (Ashford & Tsui, 1991).

Antecedents of Elaborate and Active Planning: Cognitive ability and Skills/Knowledge

• Working memory, • Acquisition of knowledge and skills,• Speeds up decision making (Ackerman & Humphreys, 1990), • Makes complex planning possible (elaborate and active conscious planning) (Kanfer & Ackerman, 1989).• Makes it possible to think of more relevant issues and about the relationships between these issues. • Qualification increases skills: ready-made routinized responses available (Frese & Zapf, 1994) • Qualifications reduce processing capacity (Kahneman, 1973). • Frees up cognitive resources which are available to develop elaborate and active plans to achieve goals.

Antecedents of Elaborate and Active Planning: Motivational Resources

• Feasibility (internal locus of control, self-efficacy) and desirability (achievement motivation and proactive personality) • Outcome and competency expectancies make it useful to

plan well, e.g. an internal locus of control leads to more elaborate and active planning because it makes sense to be active and to plan one’s actions (Skinner, 1997), and leads to higher entrepreneurial performance because entrepreneurship requires to be self-motivated and not to wait for others to tell what to do • Self-efficacy - belief to competently perform actions - makes it useful to develop elaborate and active plans which contributes to high performance.

Antecedents of Elaborate and Active Planning: Motivational Resources – 2 –

• Achievement motivation implies to want to have an impact and not to give up easily (McClelland & Winter, 1971); therefore, more develop active plans and guards from switching tasks. • Proactive Personality (subjective personal initiative) makes active and elaborate planning desirable

Measure of Elaborate and Proactive Planning

• In-depth structured interview (max 40 min)• First, rank order common business goals (e.g., increasing profits used as stimulus material)• Second, describe the two most important goal areas in detail to understand subgoals (e.g., buying a machine to expand production) – these subgoals loosely related to the stimulus material on cards • Third, asking owners to describe how they want to go about achieving their goals (2 goals) • Fourth, prompts, for example, What do you mean by ....? Can you

give me an example? What have you done so far to reach…? • Measures: substeps and number of issues thought about and how much thinking about future opportunities and threats and preparing for them now (high inter-rater reliability and Alphas)

Elaborate & proactive planning: Theoretical mediational model

Motivat.resources

Elab/proactplanning

Success

Cognitiveresources

Elaborate & proactive planning as mediator: Results from Namibia, South Africa, and Zimbabwe

Motivat.resources

Elab/proactplanning

Cognitiveresources

Frese, M., Krauss, S., Keith, N., Escher, S., Grabarkiewicz, R., Unger, J., et al. (2006). Business Owners' Action Planning and Its Relationship to Business Success in Three African Countries. Giessen: Dept. of Psychology, submitted.

High Low

Reactive strategy

Reactive Strategy in South Africa

Strategies and Entrepreneurial Success – Longitudinal Study – Betas after Controlling for Prior Success (Zimbabwe)

Planning

Reactive

Success

Success Non-Success

Non-Success

Beneficial Cycle Vicious Cycle

-.22§

Krauss, Frese, in prep.

The Action Sequence

Information search

Planning

Feedback

Execution – Monitoring

•Speed, Accuracy

•Working memory and limitations

Feedback Processing• Feedback: difference between goal and current state• Feedback: Learning• Feedback not always positive? (feedback intervention and feedback that triggers self-related thoughts, Kluger & DeNisi)

Feedback Processing: The Function of Errors

• Error management training• Errors and Performance• Error management culture

Competence 5-point-training)difficult task

11,21,41,61,8

22,22,42,6

error managementtraining

error avoidance training

Frese, M., Brodbeck, F., Heinbokel, T., Mooser, C., Schleiffenbaum, E., & Thiemann, P. (1991). Errors in training computer skills: On the positive function of errors. Human-Computer Interaction, 6, 77-93.

Error Management Training (EMT) and Mediation by Metacognition & Emotion Control

Error-avoidant vs. Error manag.

training

Transfer performance

Metacognitive activity

Emotion control

Training condition Mediators Outcome

Path fixed to zero

Keith, N., & Frese, M. (2005). Self-regulation in error management training: Emotion control and metacognition as mediators of performance effects. Journal of Applied Psychology, 90, 677-691.

Error Management Training (EMT) and Mediation by Metacognition & Emotion Control

Error-avoidant vs. Error manag.

training

Transfer performance

Metacognitive activity

Emotion control

Training condition Mediators Outcome

Path fixed to zero

Keith, N., & Frese, M. (2005). Self-regulation in error management training: Emotion control and metacognition as mediators of performance effects. Journal of Applied Psychology, 90, 677-691.

Error Management Instructions (Heuristics) •I have made an error: Great

•There is always a way out of any error situation •The more errors you make, the more you learn •Errors are a natural part of the learning process! They inform you what you are still able to learn

Error Management and Stress Management •Errors lead to added tasks (worry, dealing with problem of error) •Error management training leads to reduced stress when errors appear •Therefore, easier solution and problem solving and more learning possible

Transfer Performance in Difficult TasksOne Week After Training

TransferPerformance

Error ManagementTraining with instructions

Error avoidancetraining

Heimbeck, Frese, Sonnentag & Keith, 2003

Transfer Performance in Difficult TasksOne Week After Training

TransferPerformance

Error ManagementTraining with instructions

Error avoidancetraining

Error Trainingwithout instructions

Heimbeck, D., Frese, M., Sonnentag, S., & Keith, N. (2003). Integrating errors into the training process: The function of error management instructions and the role of goal orientation. Personnel Psychology, 56, 333-362.

Mean effect size & 95% CI by moderator Clarity of task feedback

Low clarity (k=7, n=1005) High clarity (k=16, n=976)

Keith, N., & Frese, M. (2008). Performance Effects of Error Management Training: A Meta-Analysis. Journal of Applied Psychology, 93, 59-69.

Results of Meta-Analysis: Moderator analysis of clarity of feedback

d=.19d=.57

Mean effect size & 95% CI by moderator Adaptivity of transfer task

Analogical transfer (k=12,N=1445)

Adaptive transfer (k=11,N=536)

Results of Meta-Analysis: Moderator analysis of near (analogical transfer) vs. far transfer

task (adaptive transfer)

0.80**

Keith, N., & Frese, M. (2008). Performance Effects of Error Management Training: A Meta-Analysis. Journal of Applied Psychology, 93, 59-69.

Correlations of Owners’ Error Orientation with Firm Performance (Small Scale Start-ups

Owners in Germany, N= 196)

Individual variables: Firm’s performance

Error strain (EOQ) -.27**

Learning from errors (EOQ) .12*

Error competence (EOQ) .26**

Action orientation after .30**failure (Kuhl)

* p < .05, ** p < .01

(Goebel, 1998, based on EOQ – Error Orientation Questionnaire)

Company Level: Error Management Culture – Examples of Items

• For us, errors are very useful for improving the work process.

• After an error has occurred, it is analyzed thoroughly.

• When mastering a task, people can learn a lot from their mistakes.

• When an error has occurred, we usually know how to deal with it.

Error ManagementCultural factors: - quick error discovery - quick recovery - help in discovery/recovery - organizational routines - open communication about errors - emphasis on learning

Action Error Error consequences

Error Prevention

Highest Third EMC Lowest Third EMC

Error Management Culture (EMC)

Result on Error Management Culture and Profitability

About 20% of profitability is determined by error management culture

(van Dyck, C., Frese, M., Baer, M., & Sonnentag, S. (2005). Organizational error management culture and its impact on performance: A two-study replication. Journal of Applied Psychology, 90, 1228-1240.)

The Use of Action Sequence in the Discussion of Entrepreneurship:

Uncertainty and on which Action Step is the Emphasis

McCullen, J. S., & Shephard, D. A. (in press). Entrepreneurial action and the role of uncertainty in the theory of the entrepreneur. Academy of Management Review.

Sarasvathy, S. D. (2001). Causation and effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency. Academy of Management Review, 26, 243-263.

The Action Sequence: For Example Uncertainty

Information search

Planning

Feedback

The Action Sequence: For Example Use of Action Step for Entre-

preneurial Advance

GoalLocke,Latham

Goal directed action

Information searchDaft

PlanningSarsvathy

FeedbackMarket, customer

orientation

Action Structure: Action Regulation (cf. Anderson, Hacker, Rasmussen, Schneider &

Shiffrin)

Meta- cognitive templates and heuristics

Conscious level (knowledge based, declarative

knowledge, controlled, intel- lectual

Flexible action patterns (rule based, knowledge compilation)

Skill level (automatic, procedural level)

Conscious/idea

Unconscious/physical

Conscious andautomatic

The model of hierarchical-sequential action organization

Working through a plan.....

Sequence of a plan and of comparative processes

Sequence of change processes

Arguments for (Weak) Hierarchy• Weak: because higher level does not completely determine lower levels• Higher level triggers lower levels• Hierarchy explains that we do not need an unending store of S-R connections• We are able to generate new plans from existing ones• Thoughts can be translated into action

Moving Up and Down the Hierarchy

Moving up: why an action is done; after a barrier (or error), opportunities, external pressureMoving down: how something is done; discre- pancies are reduced (detection of discrepancy) (Lord & Levy)We tend to concentrate on here and now (midlevel conscious goals, not on meta-cognitive ones) Routines develop when environment is redundant; action is smoother, more elegant, and done with less effort (emotional effects of breaking with routines)

Crossing Sequence and Structure

S e q u e n c e

Level of Goals Information Plans Monitoring/ FeedbackRegulation Search Execution

Flexibleactionpatterns

Conscious

Meta-cognitive

Crossing Sequence and Structure

Level of P l a n sRegulation

Skill Blueprints of elementary movement patterns and cognitive routines

Flexibleaction Well-known action patterns with situationalpatterns specifications

Conscious Conscious complex plans, strategies

Meta- Templates, e.g., meta-strategies; general procedures ofhow to cognitive plan; coordination of plans

Crossing Sequence and Structure (Examples)

• Some theories more concerned with sequence and some more with structure. • For example, goal setting: Different processes on different levels Lower levels: Activation and general arousal; Higher levels: Better strategies, concentrating on important issue (thus good knowledge one prerequisite of higher level processing)(Wood, Mento &Locke)

Crossing: The function of good routines and the function of high

working memory

• Cognitive resources scarce when regulation on a high level of regulation: This is the case for new, for complex, and for threat tasks: Here cognitive ability more important than for old, non-complex, and routine tasks• First years, cognitive ability more important than later• In unstable environment: cognitive ability more important

Crossing: Higher Levels of Regulation: Barriers, Opportunities, Environmental Pressures

• Barriers or errors: Conscious thinking again• Opportunities: Recognition may be intuitive (on lower level of regulation based on prototypes, routines, automatic heuristics), but use of opportunities: conscious regulation• Environmental pressures may mean that we have to do actions that are not well-rehearsed, e.g., business plan

Crossing: Mindfulness Vs. Intuition• Mindfulness: work on the upper level of regulation: But only important issues should be regulated on this level. Whatever can be delegated to lower levels should be delegated: Try to do a sale pitch and be mindful of your grammar. • Intuition – Lower level of regulation: Works only well, if routines are adequate and expertise is well-developed (function of deliberate practice)• Other function of routines: Affect based; more holistic understanding of situation• Both are necessary and need to complement each other

Crossing: Rigidity and Ultra-Stability• Lower levels of regulation: More rigid; thus always danger of using routines unthinkingly (issue of heuristics)• How easy is it to move upwards: The easier – the more the action is ultra-stable (Volpert): the more I can use any level of regulation• True hallmark of expert – who has learnt how to make routines conscious and know when to rely on non-conscious routines and when need to change to conscious

Crossing: Learning• Learning on all levels. However, problems of connecting the various levels: Problem of abstracts thoughts – when does a thought become a regulator of action?• People misunderstand their own action regulation, because lower level regulation is not conscious, e.g., intuition• Dilemma: Lower levels are only useful, if situation stays the same; however, they are necessary if many features exist and situation is complex

Action Oriented Mental Model (Hacker)

Initial state Work activities End state

- Initial states

- Conditions of execution

- Knowledge on transformation from initial to end state

- Methods of action

- Goals as anticipation of results

- Prediction of future results

The Action Oriented Mental Model as the Knowledge Base for Regulations

•Includes knowledge on goals, plans, and feedback•Guides information search•Selective and distorted: Only represents those issues that are important for the tasks•Rough outlines of actions•Long-term memory

Dynamics of Performance: The Time Dimension and Environmental

Changes

Changes over time and in the environment • The better adapted to one environment (in the sense of routines), the worse if changes in the environment appear• Therefore, important to develop routines that can be easily changed• Therefore, early warning signs of changes important (pre-signals, feedback)• Changes of tasks over time for the successful entrepreneur: First, all concentrated on survival, and building up organization, later on improved leadership/management, organizational routines, rules etc.

Changes over time and in the environment – 2 – • Success leads to new requirements; failure to different ones• Change is, therefore, more frequent for entrepreneurial units than for stable, old and established organizations• Pressure to innovate with a low level of resources

Action Theory and Learning

Theses on Learning from an Action Theory Point of View1) Action oriented knowledge is stored better and more deeply than non-action oriented mental models.2) This speaks for learning through action and action of the learning processes.3) Learning takes places on all levels of regulation. That means, action learning is always conscious and non-conscious.4) With practice in redundant environments, actions are regulated more and more on a routine or non-conscious level. 5) There is evidence that conscious approaches to learning are more powerful than non-conscious approaches. This evidence stems from meta-cognitive approaches to learning as well as through designs that increase meta-cognitive conscious approaches towards learning. 6) However, such a conscious representation of the mental model is not a true image of the problem space but abbreviated heuristic processing.7) Still the more adequate mental models include exceptions, boundary lines, and potential traps and errors of a problem space. 8) Non-conscious routines are developed in redundant environments. They function very well as long as the environment does not change. Once the environment changes, routines have a certain tendency to be used regardless of environmental feedback. This leads to inefficiencies.

9) Thus, entrepreneurs, who work in a fast changing environment, have to deal with two issues simultaneously:a) because a fast changing environment is complex it needs to be understood again and again;b) this requires extra processing capacity;c) to be able to act but still be able to understand changes, one needs to routinize everything that is routinizable so that it is possible to process things adequately;d) however, the number of routines that are then developed may lead to disasters if the environment changes.e) Quick flexibility even in routines is necessary (ultra-stability of experts)This is one of the areas that has not been studied much in cognitive psychology but which may be of particular importance for entrepreneurship.

Action Training Approach

• Action oriented mental model• Principles and rules of thumb• Learning by doing• Motivation: mismatch of present state and goal and errors• Feedback structure• Maximizing transfer of training• The problem of old well rehearsed routines

Limits to Good Performance

• cognitive misers• Satisficing strategy• Learning specifics, but not general: The function of action styles in keeping up low performance• Urgency leading to fast actions based on routines/heuristics

Training Studies on Personal Initiative and Psychological Entrepreneurship

Studies done on: - Unemployed- Employees

- Firm owners

5 studies

TRAINING

Psychological Success Factors:

Pre-Planning

Goal setting

Personal Initiative

Innovation

Time Management

SUCCESS

Training Model

Training Study in Germany

Number ofEmployees

Beforetraining

1 yearafter training

Experimental

Control

Training Study in South Africa

0.5 Mill

1 Mill

1.5 Mill

2 Mill

2.5 Mill

3 Mill

3.5 Mill3.56 Mill

2.13 Mill

0.61 Mill 0.56 Mill

Sales - Rand

Beforetraining

2 yearsafter training

Experimental

Control

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