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.