Slack resources, innovation and growth: Evidence from the US energy sector

Abstract

Recent studies show that the US energy sector's investment (particularly by the private sector) in technology development and innovation has been declining, lagging behind other sectors in the economy, and mainly focused on the fossil fuel-based areas related to the needs of the oil and gas industry. In this paper, we offer new insights on whether the U.S. energy sector has optimally managed the deployment of different types of slack (unused) resources in pursuing investment in R&D and new technologies vs. existing assets and core efficiencies. Using a multi-industry sample of technology-intensive firms provided by the Boston Consulting Group (BCG), our results show that the energy sector's slack resources and R&D investment profile were, on average, markedly different from those in other sectors. The energy sector did not pursue a balanced investment strategy by simultaneously exploiting existing assets and exploring new opportunities - being ambidextrous. Energy was the most exploitative and the least explorative sector with the highest (the lowest) average capital expenditures (R&D) intensities among the remaining sectors in the sample. The results also show that, in terms of longer-term profitability, the majority of other technology-intensive sectors have significantly outperformed the energy sector. From a public policy perspective, our results call for more effective regulatory and tax policies focused on enhancing private-sector investment in energy innovation. We further believe as more adaptable technology intensive companies achieve higher profitability over time, energy firms will be pressured to better manage the balance between their slack resources and investment strategies to achieve higher performance through innovation.