Navigating the emerging market context: Performance implications of effectuation and causation for small and medium enterprises during adverse economic conditions in Russia

Abstract

Research Summary This study aims to broaden the understanding of effectuation and causation by investigating their effectiveness for small and medium enterprises (SMEs) in the emerging market context during adverse economic conditions. We embrace a holistic view of the performance implications of these behavioral logics, theorizing and empirically testing their impact not only on the level of firm performance but also on its variability. The findings suggest that emerging market conditions create significant contingencies in the relationships between effectuation, causation, and firm performance, substantively affecting their effectiveness. In particular, we demonstrate that for the firms affected by adverse conditions, causation brings marginal performance improvements while also making it highly unreliable (variable), whereas effectuation leads to performance improvements coupled with higher reliability. Managerial Summary Entrepreneurial actions can be based on one of two behavioral logics: causation (rigorous forward‐looking analysis, relying on well‐prepared plans, pre‐defined goals, and required resources) or effectuation (leveraging the existing resources and controlling the environmental uncertainty through creating new markets, products, and opportunities). We investigate the effectiveness of these logics for Russian SMEs navigating adversity in the emerging market context. The results suggest that causation leads to performance improvements, yet these become marginal and highly unreliable if a firm finds itself in adverse conditions. Effectuation, on the other hand, is a costly and unreliable strategy in stable times, yet leads to reliable performance improvements in volatile contexts.

Exploration and exploitation in crisis environment: Implications for level and variability of firm performance

“…Changes in organizational performance, especially performance decline (Cameron, Sutton, & Whetten, 1988;Weitzel & Jonsson, 1989;Zammuto & Cameron, 1985), have an impact on managerial behaviors, particularly in the situation of economic adversity or external threat (Battisti et al, 2019;Chattopadhyay, Glick, & Huber, 2001;Shirokova, Ivvonen, & Gafforova, 2019;Shirokova, Osiyevskyy, Laskovaia, & MahdaviMazdeh, 2020). A well-developed literature on strategic adaptation suggests threat perception can be considered as a catalyst for a strategic response (e.g., Gilbert, 2005;Laskovaia, Marino, Shirokova, & Wales, 2019).…”

“…The performance implications of such strategic behaviors depend on the firm's operating environment and in crisis contexts, defensive strategies can protect firm survival (Håkonsson, Klaas, & Carroll, 2013). However, a number of studies have observed that threat can also be an antecedent of the more proactive strategic behaviors that enable firms to overcome inertia (Beliaeva, Shirokova, Wales, & Gafforova, 2020;Laskovaia et al, 2019;McKinley et al, 2014;Shirokova et al, 2019Shirokova et al, , 2020.…”

“…The data for this study were collected from a survey of Russian small and medium firms (Beliaeva et al, 2020;Laskovaia et al, 2019;Shirokova et al, 2019Shirokova et al, , 2020 in late 2015 and early 2016 (September to February), amidst a period of major economic downturn and instability in the country. The Russian economy in this period (2014-2016) was in a crisis state for several reasons.…”

Rethinking survival, renewal, and growth strategies of SMEs in Bangladesh: the role of spiritual leadership in crisis situation

“…Several reports at this level indicate that strategic innovation initiatives can be important strategic solutions for businesses confronting the crisis (Paunov, 2012). Several recent studies also argue that while businesses tend to minimize innovation tactics in the light of economic crises in general, implementing innovative and constructive initiatives will allow companies to solve the crisis and increase their innovative performance and turnover recovery (Archibugi et al, 2013;Shirokova et al, 2020). Other Our firm has been analyzing each of the products or services, one by one, for strategic importance, significance and profitability I believe that learned lessons during a pandemic will help the firm to reset a new foundation and way forward to success There has been the implementation of new management practices Growth…”

On predictive entrepreneurial action in uncertain, ill-structured conditions

“…Effectuation has been argued to take the opposite stance (Bhowmick 2011;Dew et al 2008;Dew and Sarasvathy 2002;Grégoire and Cherchem 2020;Read and Sarasvathy 2005;Schneider 2018;Tumidei et al 2020) and has been juxtaposed with causation in different respects (Dew et al 2009;Fisher 2012;Read and Sarasvathy 2005;Shirokova et al 2020). Effectuation describes a process apt for facing an environment which is uncertain and ill-structured to a degree that does not make it possible to predict the future; alternatively, effectuation leans on the idea that to "the extent that we can control the future, we do not need to predict it" (Sarasvathy 2001: 252).…”