Firm Capabilities and Growth: The Moderating Effect of Market Conditions

Abstract

Past research on organizational capabilities has mainly focused on the impact of individual capabilities (e.g., marketing, R&D, or operations) in isolation within a short time-span (see Krasnikov and Jayachandran 2008 for review). However, in practice capabilities coexist within an organization and are intertwined. They are also developed over a long time and are embedded within the firm (Grewal and Slotegraaf 2007). In addition, the performance impact of capabilities may vary under different conditions (Moorman and Slotegraaf 1999). Building on the contingency theory, this study examines the impact of multiple firm capabilities and their interactions on firm growth under different market conditions using a panel data from 612 U.S public firms across 16 years in over 60 industries. More specifically, this study empirically examines (1) how different organizational capabilities (marketing, R&D, operations) interact and impact firm sales growth and profit growth simultaneously over a long period of time; (2) how external boundary conditions (market munificence and complexity) influence the interactive effects (complementarity vs. substitution) of these capabilities. The results suggest that R&D (operations) capabilities positively (negatively) reinforce the effects of marketing capabilities on firm growth and that such effects vary across different market conditions. Researchers and managers can gain insights from this study regarding how to manage and deploy multiple resources and capabilities simultaneously under different market conditions to drive firm growth.