Capability Building in Sluggish Organizations

Kfir Eliaz () and Ran Spiegler ()
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Kfir Eliaz: Tel Aviv University, 6997801 Tel Aviv, Israel; University of Utah, Salt Lake City, Utah 84112
Ran Spiegler: Tel Aviv University, 6997801 Tel Aviv, Israel; University College London, London WC1E 6BT, United Kingdom

Management Science, 2023, vol. 69, issue 3, 1703-1713

Abstract: In order to thrive, organizations need to build and maintain an ability to meet unexpected external challenges. Yet many organizations are sluggish: their capabilities can only undergo incremental changes over time. What are the stochastic processes governing “routinely occurring” challenges that best prepare a sluggish organization for unexpected challenges? We address this question with a stylized principal-agent model. The “agent” represents a sluggish organization that can only change its capability by one unit at a time, and the “principal” represents the organization’s head or its competitive environment. The principal commits ex ante to a Markov process over challenge levels. We characterize the process that maximizes long-run capability for both myopic and arbitrarily patient agents. We show how stochastic, time-varying challenges dramatically improve a sluggish organization’s preparedness for sudden challenges.

Keywords: training programs; organizational preparedness; sluggish adaptation; periodization; dynamic capabilities (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:3:p:1703-1713

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