Organizational slack and response to environmental shifts.docx

Organizational slack and response to environmental shifts.docx

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Organizationalslackandresponsetoenvironmentalshifts

Organizationalslackandresponsetoenvironmentalshifts:

theimpactofresourceallocationpatterns

Formostmanagersintoday'scomplexanddynamicenvironmenttheterm"slack"conjuresupahostofnegativeperceptions.Fueledinpartbythemostrecentrecession,slackisviewedasanunnecessarycosttoorganizations.Indeed,theresponseofmostmanagerstodayisto"downsize"or"rightsize"theirbusinessesinwaysthateliminateslack.Thisistrueofslackassociatedwithbothcapitalandlaborresources.Forinstance,throughoutthe1990s,manyfirmshaveclosedplants,shutdownentiredivisions,eliminatedduplicateresourcesacrossdepartments,flattenedorganizationalhierarchies,reducedexecutiveperksandsalaries,laidoff"surplus"or"non-essential"personnel,andrestructureddebtobligations.Oneoftheunderlyingargumentsinfavoroftheseactionsisthattheyhelpfirmslowertheircostsandimproveoperationalefficiency.Thisargumentisparticularlypopularamongexecutiveswhosefirmsarecompetinginindustrieshardhitbyeconomicdownturnsorplaguedbyovercapacity.

Giventheseunsettlingtrends,itisnotsurprisingthatthepopularpresshasreinforcedthisexclusivelynegativeviewofslackresources.Yet,theacademicliteraturehasbeenlessonesided.Formanyyears,therehasbeenanongoingdebateamongorganizationalresearchersontheroleslackplaysinorganizationaladaptation（Bourgeois,1981）.Somearguethatslackprovidesresourcesforinnovationandchange,therebyenhancingafirm'sabilitytoadapttoenvironmentalshiftsandimprovelong-termperformance（Carter,1971;Cyert&March,1963;Mohr,1969）.Thisimpliesarelativelyproactiveapproachtohowslackisusedinorganizations.Othersarguethatslackisananalogforinefficiency-abufferwhichshieldsthefirmand,insomecases,blindsitfromchangeswhichareneededtomeetexternaldemands（Litschert&Bonham,1978;Thompson,1967;Yasai-Ardekani,1986）.Thisalternativeviewsuggestsamorereactivestancewhenitcomestoslack'sroleinorganizations.Althoughsomeresearchhasbeendoneinanattempttoadvanceeithertheslack-as-resources-for-changeortheslack-as-a-bufferargument（Bateman&Zeithaml,1989;Ginsberg&Buchholtz,1990;Meyer,1982;Singh,1986;Smith,Grimm,Gannon,&Chen,1991）,nosystematicworkhasbeendonetointegratethesetwoperspectivesintoacomprehensiveframework.

Thispapercontributestotheaboveliteraturebyexaminingtheeffectoforganizationalslackontheextentofafirm'sresponsetoshiftingenvironmentalconditions.BuildingontheearlierworkofCyertandMarch（1963）andThompson（1967）,anddrawingfromtheorganizationalstrategyliterature（Fombrun&Ginsberg,1990;Hofer&Schendel,1978;Miles&Snow,1978;Mintzberg,1978）,itisproposedthattheeffectoforganizationalslackonafirm'senvironmentalresponseiscontingentonthefirm'sresourceallocationpattern.ThispropositionwastestedonfirmsintheU.S.airlineindustry,withinthecontextofindustryderegulation.Inthesectionsthatfollow,weexplorethebasictheorysupportingthispropositionandthemethodbywhichwewillempiricallytestit.

BackgroundandTheoreticalAnalysis

Organizationalslackhaslongbeenatopicofinteresttomanagementresearchers.Intheearly1980s,forexample,Bourgeois（1981）definedorganizationalslackasacushionofexcessresourcesthatcanbeusedinadiscretionarymanner.Usingthisbasicdefinitionasaguide,otherresearcherswentontoidentifythreetypesofslackresources:

available,recoverable,andpotential（Bourgeois&Singh,1983;Sharfman,Wolf,Chase&Tansik,1988）.Availableslackconsistsofresourcesthatarenotyetcommittedtoorganizationaldesignoraspecificexpenditure（e.g.,excessliquidity）.Recoverableslackconsistsofresourcesthathavealreadybeenabsorbedintothesystemoperationasexcesscosts（e.g.,excessoverheadexpenditures）butcanberecoveredthroughorganizationredesign.Finally,potentialslackconsistsoffutureresourcesthatcanbegeneratedfromtheenvironmentbyraisingadditionaldebtorequitycapital,forexample.

Althoughthesebasicdefinitionsarewellestablishedintheliterature,therearetwocontrastingviewsabouttheroleslackplaysinorganizationaladaptationprocesses.Thefirstperspectiveviewsslackasresourcesforinnovationandchange（Cyert&March,1963;Mohr,1969）.Inthiscase,slackallowsanorganizationtoexperimentwithnewposturesinrelationtoachangingenvironment.Thesenewapproachesmightincludeactionsrangingfromnewproductintroductionstoinnovationsinmanagementstyle（Bourgeois,1981）.Thegeneralargumentisthatinnovationandchangerequireandconsumeresources,andorganizationsaremorelikelytosupportspecialprojectsinthepresenceofsl