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Capability Building in Sluggish Organizations

Author

Listed:
  • 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)

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.

Suggested Citation

  • Kfir Eliaz & Ran Spiegler, 2023. "Capability Building in Sluggish Organizations," Management Science, INFORMS, vol. 69(3), pages 1703-1713, March.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:3:p:1703-1713
    DOI: 10.1287/mnsc.2022.4445
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    References listed on IDEAS

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