Outline What is slack resources? So what? How to use?
Definition Excess resources are important determinants of organizational structure, growth, and performance.( Penrose,1959) The difference between total resources and total necessary payments.( Cyert and March,1963) Bourgeois(1981) added that slack is a resource cushion that firms can use in a discretionary manner, both to counter threats and exploit opportunities.
Categories Bourgeois(1981), slack is conceived here as being composed of three interrelated but conceptually distinct dimensions: available, recoverable and potential slacks. Available slack consists of resources that are not yet assimilated into the technical design of the organization, e.g., excess liquidity. unabsorbed slack. (Singh.1986) Recoverable slack consists of resources that have already been absorbed into the system design as excess costs, e.g., excess overhead costs, but many be recovered during adverse times. absorbed slack. (Singh.1986) Potential slack consists of the capacity of the organization to generate extra resources from the environment, as by raising additional debt or equity capital.
Measurement Questionaries: (A) assume that due to some sudden development, 10% of the time of all people working in your department has to be spent on work totally unconnected with the tasks and responsibilities of your department. How seriously will your output be affected over the next year? (B) Assume that due to a similar development your department’s annual operating budget is reduced by 10%. How significantly will your work be affected over the next year? Nohria,N. (1996), AMJ
Financial measurement: Available slack– cash flow/net sales, current ratio, quick ratio. Recoverable slack– overhead/net sales, inventory/net sales Potential slack—long term debt/net worth, price/earnings ratio Measurement
Theoretical based Behavioral RBV based– slack resources play a crucial role in allowing organizations to innovate by permitting them to experiment with new strategies and innovative project that might not be approved in a more resource-constrained environment (Cyert & March 1963), and it can eliminate conflict among TMT. Agency theory-- slack diminishes incentives to innovate and promotes undisciplined investment in R&D activities that rarely yield economic benefits, it encourages the pursuit of pet projects by agents who show little regard for the interests of the principals they serve. -- Paradox --- more or less is better?
How to use? Performance– positive, negative, and adverse U-shape, meta- analysis Innovation—Exploration and exploitation, new product development. Risking taking--Pricing strategy, environmental treat, adaptation Bankrupt research