Managing uncertainty in emerging economies: The interaction effects between causation and effectuation on firm performance

Causation and effectuation are acknowledged as two fundamental strategic decision-making logics that firms use to form strategies to cope with uncertainty. Using data collected from 312 software firms in an emerging economy, we explore the effects of causation and effectuation on firm performance. In addition, we investigate the contingent interaction effects between causation and effectuation on firm performance from the perspective of organizational ambidexterity. We find that (1) causation and effectuation have a positive interaction effect on firm performance when environmental uncertainty is (relatively) high, but have a negative interaction effect on firm performance when environmental uncertainty is (relatively) low; (2) causation has a positive effect on firm performance in emerging economies; and (3) effectuation has a positive effect on firm performance in emerging economies when environmental uncertainty is (relatively) high. Our findings suggest entrepreneurial firms in emerging economies use a combination of causation and effectuation in a more uncertain environment, and adopt causation as a priority in a less uncertain environment.