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An Action Theory of Entrepreneurship Michael Frese Justus Liebig Univ. Giessen,

This paper introduces the action theory of entrepreneurship, exploring its applications in active planning, learning from errors, and training. It discusses the role of action as the core of entrepreneurship and offers a sophisticated theory that explains entrepreneurial actions and success.

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An Action Theory of Entrepreneurship Michael Frese Justus Liebig Univ. Giessen,

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  1. An Action Theory of Entrepreneurship Michael Frese Justus Liebig Univ. Giessen, Interdisciplinary Research Unit for Evidence-Based Management and Entrepreneurship and London Business School

  2. Outline • Action theory introduction • Applications: • Active planning • Learning from errors • Training

  3. Goal of Action Theory • Action as the core of entrepreneurship • Integration • Sophisticated theory that explains entrepreneurial actions and, thereby success

  4. The Giessen Amsterdam Model of Entrepreneurial Success (Revised) A • Person • Traits • Orientations • Cognitive ability M4 C M1 M2 Goals A Success B • Human Capital • Experience • Expertise • Learning • Knowledge • Skills D Action M3 E Environment National Culture

  5. 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

  6. Goal Feedback Information search Monitoring of execution Planning The Action Sequence 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

  7. Goal development (Decision) Action sequence Goal development Plan decision) Carrying out Processing 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

  8. Goals • 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)

  9. Goal Feedback Information search Monitoring of execution Planning The Action Sequence 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

  10. 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

  11. Plans • 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

  12. Plans • 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)

  13. 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)

  14. 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

  15. Informal Planning of Business Owners • Business owners work in an unstructured • situation  planning more necessary than • for employees • Recently scepticism towards planning; rather • intuition, experimentation, improvisation • Argument: planning takes too long and produces • a 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

  16. 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

  17. 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).

  18. 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.

  19. 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.

  20. 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

  21. 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)

  22. Elaborate & proactive planning: Theoretical mediational model Motivat. resources Elab/proact planning Success Cognitive resources

  23. Elaborate & proactive planning as mediator: Results from Namibia, South Africa, and Zimbabwe Motivat. resources .00 .19 Elab/proact planning Size .54 * .38 * Cognitive resources .37 * 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.

  24. Reactive Strategy in South Africa 39% 6%

  25. Strategies and Entrepreneurial Success – Longitudinal Study – Betas after Controlling for Prior Success (Zimbabwe) Beneficial Cycle Vicious Cycle Time -.22§ .26* Non- Success Reactive Success Planning .41* -.19* Planning Non- Success Reactive Success Krauss, Frese, in prep.

  26. Goal Feedback Information search Monitoring of execution Planning The Action Sequence 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

  27. Execution – Monitoring • Speed, Accuracy • Working memory and limitations

  28. 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)

  29. Feedback Processing: The Function of Errors • Error management training • Errors and Performance • Error management culture

  30. Competence 5-point-training)difficult task 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.

  31. 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. Training condition Mediators Outcome Emotion control Error-avoidant vs. Error manag. training Transfer performance Metacognitive activity Error Management Training (EMT) and Mediation by Metacognition & Emotion Control .30* .40** Path fixed to zero .60** .34**

  32. 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. Training condition Mediators Outcome Emotion control Error-avoidant vs. Error manag. training Transfer performance Metacognitive activity Error Management Training (EMT) and Mediation by Metacognition & Emotion Control .30* .40** Path fixed to zero .60** .34**

  33. 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

  34. 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

  35. Transfer Performance in Difficult Tasks One Week After Training Transfer Performance Error Management Training with instructions Error avoidance training Heimbeck, Frese, Sonnentag & Keith, 2003

  36. Transfer Performance in Difficult Tasks One Week After Training Transfer Performance Error Management Training with instructions Error avoidance training Error Training without 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.

  37. Results of Meta-Analysis: Moderator analysis of clarity of feedback d=.57 d=.19 Keith, N., & Frese, M. (2008). Performance Effects of Error Management Training: A Meta-Analysis. Journal of Applied Psychology, 93, 59-69.

  38. Results of Meta-Analysis: Moderator analysis of near (analogical transfer) vs. far transfer task (adaptive transfer) 0.80** 0.17 Keith, N., & Frese, M. (2008). Performance Effects of Error Management Training: A Meta-Analysis. Journal of Applied Psychology, 93, 59-69.

  39. 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)

  40. 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.

  41. Action Error Error consequences Error Management Cultural factors: - quick error discovery - quick recovery - help in discovery/recovery - organizational routines - open communication about errors - emphasis on learning Error Prevention

  42. 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.)

  43. 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.

  44. Goal Feedback Information search Monitoring of execution Planning The Action Sequence: For Example Uncertainty

  45. Goal Locke,LathamGoal directed action Feedback Market, customer orientation Information search Daft Monitoring of execution Planning Sarsvathy The Action Sequence: For Example Use of Action Step for Entre- preneurial Advance

  46. 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

  47. Action Structure: Action Regulation (cf. Anderson, Hacker, Rasmussen, Schneider & Shiffrin) Meta- cognitive templates and heuristics Conscious level (know- ledge based, declarative knowledge, controlled, intel- lectual Flexible action patterns (rule based, knowledge compilation) Skill level (automatic, procedural level) Conscious and automatic Conscious/ idea Unconscious/ physical

  48. The model of hierarchical-sequential action organization

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