Abstract for: Improving resilience through the capability frontier: decisions to invest in building dynamic capability
Resilient organizations need to balance the use of already developed capabilities (exploitation), which allow them to compete effectively in the short-run, with the simultaneous development of new ones (exploration), which allow them to compete effectively in the long-run. That is, organizations must manage their stock of capabilities dynamically to anticipate and adapt to changes in the environment. To achieve resilience, organizations must make sound resource allocation decisions regarding the development of new capabilities. Insufficient allocation of resources towards capability development may cause organizations to fall into a capability trap, characterized by low organizational capability and low performance. Although extensive research has been conducted on the environmental, organizational, and individual factors that impact resource allocation decisions, the exploration of specific attributes of a particular capability remains lacking. Building on the strategic management and capability trap literatures, we develop a formal theoretical model to examine the influence of specific capability attributes on managers' propensity to develop them. We find that three key attributes of capabilities influence managers’ decisions to develop them: development time, erosion time, and productivity. Furthermore, we define a “capability frontier” characterized by a favorable combination of the three key attributes determining an attractive area for investment in capability development.