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Resource idling and capability erosion
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Ross, Jan-Michael, Li, Toby X., Hawk, Ashton and Reuer , Jeffrey Resource idling and capability erosion. Academy of Management Journal . doi:10.5465/amj.2020.1050 ISSN 0001-4273. (In Press)
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Official URL: https://doi.org/10.5465/amj.2020.1050
Abstract
Why would some firms persist with continued operations when facing unfavorable economic conditions? Although prior studies have investigated the roles of uncertainty and sunk costs as sources of inertia, an unacknowledged type of sunk cost associated with temporary suspensions of operations is related to the erosion of existing capabilities. Building on the resource-based view and real options theory, we argue that resource idling contributes to capability erosion and that the anticipated capability loss motivates firms to refrain from idling their resources under demand uncertainty in the first place. The negative effects of uncertainty on resource idling are likely to be particularly strong for firms with superior capabilities and for those having a greater reliance on human capital. Using data on oil-drilling contractors in Texas, the empirical evidence lends support to our theoretical arguments. Our insights suggest that resource idling shapes the development path of capabilities and risks jeopardizing firms’ competitive advantages. The seemingly operational decision of temporarily idling resources can therefore be quite strategic for a firm, and hysteresis, or inertia in continuing operations, can preserve firms’ capabilities.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management T Technology > T Technology (General) |
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| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
| Library of Congress Subject Headings (LCSH): | Resource allocation, Operations research, Industrial management, Demand (Economic theory), Uncertainty, Real options (Finance), Strategic planning | ||||||||
| Journal or Publication Title: | Academy of Management Journal | ||||||||
| Publisher: | Academy of Management | ||||||||
| ISSN: | 0001-4273 | ||||||||
| Dates: |
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| DOI: | 10.5465/amj.2020.1050 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | In Press | ||||||||
| Reuse Statement (publisher, data, author rights): | Dr. Jan-Michael Ross, Mr. Toby X. Li, Professor Ashton Hawk, and Professor Jeffrey Reuer, 0: Resource Idling and Capability Erosion. AMJ, 0, https://doi.org/10.5465/amj.2020.1050 | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Copyright Holders: | Copyright 2022 | ||||||||
| Date of first compliant deposit: | 19 December 2022 |
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