Organizational Slack and Response to Environmental Shifts: The Impact of Resource Allocation Patterns

Abstract

This study examines whether slack resources have differential effects on the extent of a firm's response to environmental shifts. Using a sample of 30 airlines during the transitional period of industry deregulation, we found that the relationship between slack resources and the extent of a firm's environmental response is contingent on the firm's pattern of resource allocations. Specifically, our results show that as firms allocate more resources toward activities which enhance external market effectiveness, increases in slack increase the extent of their environmental response. Conversely, as firms allocate more resources to activities that enhance internal efficiency, increases in slack decrease the extent of their environmental response. The implications of these findings are discussed. In particular, we examine these findings relative to the ongoing debate concerning the role slack plays in organizational adaptation processes.For most managers in today's complex and dynamic environment the term "slack" conjures up a host of negative perceptions. Fueled in part by the most recent recession, slack is viewed as an unnecessary cost to organizations. Indeed, the response of most managers today is to "downsize" or "rightsize" their businesses in ways that eliminate slack. This is true of slack associated with both capital and labor resources. For instance, throughout the 1990s many firms have closed plants, shut down entire divisions, eliminated duplicate resources across departments, flattened organizational hierarchies, reduced executive perks and salaries, laid off "surplus" or "non-essential" personnel, and restructured debt obligations. One of the underlying arguments in favor of these actions is that they help firms lower their costs and improve operational efficiency. This argument is particularly popular among executives whose firms are competing in industries hard hit by economic downturns or plagued by overcapacity.

Archetypes of organizational success and failure

“…Since slack enables innovation and exploration (Cheng & Kesner, 1997;Sidhu, Volberda, & Commandeur, 2004), slack fuels continuing growth. Moreover, slack is a necessary condition for organizational renewal.…”

Competitive Strategy and Performance in Mexico, Peru, and the United States

“…The notion that more innovative firms outperform less innovative ones is well documented in the literature (Dutta et al, 2005;Kor & Mahoney, 2005). Nonetheless, strong performance can also create opportunities for innovation through increased market share and more slack resources (Cheng & Kesner, 1997;Daniel, Lohrke, Fornaciari & Turner, 2004). Hence, there is theoretical support for a reciprocal relationship between innovation and performance.…”

Örgütlerde Kaynak Bilgisinin Girişimsel Oryantasyon Üzerindeki Etkisi

“…Bütün bu bilgiler ışığında, Bromiley (1991), Cheng & Kesner (1997), Chiu & Liaw (2009), Alessandri, vd., (2014, Gürkan (2016) ile benzer şekilde bu çalışmada da işletmelerin cari oranı, mevcut bolluğun göstergesi olarak kabul edilmiştir. Çalışmada cari oran, her bir işletme ve her bir yıl için ayrı ayrı Eşitlik 3'deki gibi hesaplanmıştır.…”

“…Cheng & Kesner (1997), Chiu & Liaw (2009), Lin & Liu (2012, Lin (2014), Alessandri, vd., (2014 çalışmalarına benzer şekilde bu çalışmada örgütsel bolluk Eşitlik 5'teki gibi hesaplanmıştır.…”