The Impact of Slack Resources on Exploration and Exploitation: an Upper Echelons and Behavioral Theory of the Firm Perspective
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Slack resources can be critical for organizational success, but cumulative research regarding the relationship between slack and organizational outcomes (e.g., firm performance and innovation) has resulted in mixed findings. Using the behavioral theory of the firm, I untangled the effect of slack by differentiating between the impacts of unabsorbed, absorbed, and potential slack and investigating their effects on exploratory and exploitative activities in organizations. More importantly, I introduced an upper echelons perspective in order to highlight the critical role of CEO tenure, functional background type, functional background breadth, and technical education in unabsorbed slack deployment. This is one of the first such efforts in the organizational literature. The findings, based on panel data from the computer software industry, confirm differential effects of unabsorbed and potential slack on exploration and exploitation. Results also indicate that firms led by CEOs with wider breadth of functional background and with technical education tend to use more unabsorbed slack resources towards exploitative activities.