Striking the balance: Configurations of causation and effectuation principles for SME performance

Abstract

Causation and effectuation are two fundamental decision-making logics that managers use for crucial firm strategic decisions. However, existing research has yet to agree on the relationship between the two logics, supporting both the substitution and complementarity of causation and effectuation in influencing firm performance. This leaves us with a puzzle: How do causation and effectuation combine in balance to improve firm performance? To address the gap, we utilize a fuzzy set qualitative comparative analysis (fsQCA) with data collected from 344 small to medium-sized enterprises (SMEs) in China to uncover the dynamic relationships between the two logics. Our findings indicate that causation or effectuation alone is insufficient to achieve superior firm performance. By distinguishing between four dimensions of effectuation, we identify three types of configurations for high performance: (1) causation with promotion-focused effectuation principles; (2) causation with prevention-focused effectuation principles; (3) causation with hybrid-focused effectuation principles. More importantly, we find that the effectiveness of the configurations depends on the firm development stage. Our findings provide SMEs with practical insights into how to effectively choose their decision-making logic when faced with different firm growth challenges.