Does Performance Breed Slack? Ownership as a Contingency to the Performance Feedback and Slack Relationship

Abstract

Although organizational slack is a prominent construct in strategic management, it is often treated as an antecedent or enabler of other organizational outcomes, and thus our understanding of where slack comes from is underdeveloped. We draw on the behavioral theory of the firm to develop a better understanding about the antecedents of organizational slack. In so doing, we address a gap in the literature on the antecedents of slack by developing base models showing how and why performance feedback influences the three most common types of slack studied in the literature. Moreover, we contend that ownership is an important contingency that influences these relationships because different types of owners are motivated by different norms. Within a “communitarian” culture such as Japan, domestic owners generally have a multifaceted relationship with the firm and hence are motivated by norms of reciprocity and embeddedness, thereby allowing managers to adopt a stakeholder perspective. In contrast, foreign investors typically have only an arm’s-length relationship with the firm and are thus motivated by stock price, thereby putting “contractarian” pressures on managers to adopt a shareholder perspective. This domestic/foreign ownership distinction influences how resources are allocated and therefore the relationship between performance feedback and different types of slack in the firm. We further emphasize that these relationships will vary in accordance to where the slack resides: internal or external to the firm. We find general support for our hypotheses.

The effect of slack configurations on company performance from a dynamic perspective

“…Our paper helps managers understand the characteristics of the different types of slack resources, their effects on performance, and how this effect is associated with different environments and economic situations. These results will aid in the management of these resources over time for a better accumulation (Titus et al, 2022) or consumption (Agustí, Galán, & Acedo, 2021; Agustí‐Perez et al, 2020). Furthermore, our paper shows that the effect of the different types of slack resources change depending on the munificence of the environment.…”

“…The present study represents a contribution to the analysis of the slack–performance relationship from a configurational perspective (Marlin & Geiger, 2015a, 2015b; Mousa et al, 2013), incorporating a dynamic performance approach (Bianchi, 2016). The main difference from previous studies consists of the inclusion of time and the possibility of developing a dynamic analysis of the slack–performance relationship, together with the examination of the use or generation that companies make of these resources, as suggested by some authors (Bianchi et al, 2018; Laitinen, 2002; Titus et al, 2022). The conclusions for the three objectives of the study are set out below.…”

“…It is also plausible to assume a conversion of recoverable slack into more liquid resources to be able to respond to uncertain situations to come. These behaviors will be reinforced by the availability of slack resources (Wenzel et al, 2020) (configuration) and the results obtained (Titus et al, 2022).…”

“…As Wan and Yiu (2009) suggested, organizational slack would improve firm performance during an environmental jolt and worsen results when the external environment is more munificent. Beyond using slack resources to proactively initiate strategic change (Bourgeois, 1981), these changes will depend, to a large extent, on the external circumstances faced by companies, so that it is possible to expect greater changes in situations of crisis than in situations of stability (Titus et al, 2022). Thus, firms will try to have liquidity during scarcity periods (Jung et al, 2020) to face different strategies (Wenzel et al, 2020).…”

“…In general, studies have striven to determine the effect of a certain type of slack on performance by establishing either a linear or a curvilinear relationship. These studies are also characterized as being cross‐sectional or covering only a short period of time (Agustí‐Perez et al, 2020; Carnes et al, 2019; Gral, 2014; Titus et al, 2022).…”