Innovation, effectuation, and uncertainty

• Published in: Innovation (North Sydney) 2024-04, Vol.26 (2), p.328-348
• Main Authors: Ryman, Joel A., Roach, David C.
• Format: Article
• Language: English
• Subjects: Effectuation; firm performance; innovation management; risk; SME; uncertainty
• ISSN: 1447-9338; 2204-0226
• DOI: 10.1080/14479338.2022.2117816

Innovation theory clearly differentiates between innovation processes and entrepreneurial processes through its distinction between uncertainty and risk. The authors' premise is that innovation and entrepreneurship are interdependent, where the role of the innovator is to reduce uncertainty, while the role of the entrepreneur is to manage uncertainty to a point where risk can be assessed. Taking an effectual innovation approach, innovation is modelled as uncertainty management requiring experimentation and flexibility, while entrepreneurial risk management is modelled as pre-commitments and affordable loss. Using data from the innovation processes of 169 US SMEs, the authors propose and test an exploratory empirical model which distinguishes uncertainty from risk and its impact on innovation and firm performance. The authors contend that once uncertainty and risk management aspects are isolated, their relationship to innovation performance can be investigated. The results indicate that uncertainty management does positively impact innovation performance, while a risk management approach impacts firm performance. Our model suggests that it may be helpful to segregate uncertainty and risk at the entrepreneurship-innovation interface.