Examining the Sustainability of Contributions of Competing Core Organizational Capabilities in Response to Systemic Economic Crises

Ali O. Jifri (), Paul Drnevich, William Jackson and Ron Dulek
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Ali O. Jifri: Department of Public Administration, Faculty Economics and Business Administration, King Abdulaziz University, Jeddah 21589, Saudi Arabia
Paul Drnevich: Department of Management, College of Business, University of Alabama, Tuscaloosa, AL 35487, USA
William Jackson: Department of Management, College of Business, University of Alabama, Tuscaloosa, AL 35487, USA
Ron Dulek: Department of Management, College of Business, University of Alabama, Tuscaloosa, AL 35487, USA

Sustainability, 2023, vol. 15, issue 5, 1-16

Abstract: A dynamic capability view is used in this study to explain how organizational capabilities operate effectively and efficiently in stable environments and respond dynamically to changing conditions in their operating environments. Such capabilities enable organizations to both create and sustain their performance. When faced with a systemic change in the environment, such as a global economic crisis, organizational capabilities may no longer contribute effectively to sustain organizational performance or their survival. In this study, we examine the effectiveness and sustainability of organizational capabilities in response to a systemic economic crisis. We do so through examining these issues in a broad multiyear sample of U.S. credit unions through the global financial crisis. In this context, organizations utilized two types of competing capabilities: explorative capabilities to increase revenues and/or exploitative capabilities to reduce expenses. The effectiveness of these capabilities and the sustainability of the resulting performance implications of their combined deployment remains under-theorized and insufficiently examined, particularly under conditions of high economic uncertainty. We examine these issues using a sample of 1127 large U.S. credit unions collecting comparative data during a period of economic stability from 2001 to 2004 and during a period of economic instability from 2006 to 2009, before and after the 2008 global financial crisis. We perform multiple regression analysis to examine the contributions and sustainability of organizational capabilities to relative performance. Interestingly, we find that in stable times, the explorative capability to increase revenues appears to contribute more to performance, while in the crisis period, the exploitative capability to reduce expenses appears to contribute more to performance. Further, the combined effect of deploying both “competing” capabilities simultaneously is related to performance only when the environment is stable and can be detrimental during a crisis. The results suggest that using expense decreasing capabilities (but not revenue increasing capabilities or both combined) is better when facing an economic crisis.

Keywords: dynamic capabilities; crisis; capabilities; ambidexterity; sustained performance; uncertainty (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
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