The Adjustment–Stability Trade-Off in Resource Allocation

Niklas Lindlbauer 
King’s College London, UK

Abstract:

Corporate-level resource allocation is a critical topic in strategic management. The paper presented during this seminar addresses the structural trade-off between adjustment and stability in resource allocation by developing understanding of the performance effects of the extent to which firms adjust their resource allocation over time.
The results show that the relationship between a firm’s extent of adjustment and performance is inverse U-shaped, indicating that neither adjustment nor stability in resource allocation is generally preferable, but rather that firms with the ability to balance the two deliver superior performance.
The authors find that 96% of observations are located to the left of the turning point. This asymmetry indicates that firms more commonly under-adjust than over-adjust their resource allocation. In addition, the authors find that the turning point of the inverse U-shaped curve shifts right in fast-paced environments, and the relationship becomes steeper in highly competitive environments.
These findings help explain why decades of work on allocation efficiency has produced mixed results on the resource allocation-performance relationship: most studies did not distinguish the performance drag of under-adjustment from that of over-adjustment, effectively averaging two distinct tendencies.

Niklas Lindlbauer is an Assistant Professor in Strategic Management at King’s College London and a Research Associate at the University of Cambridge, where he also obtained his PhD. His research focuses on corporate-level strategy and strategic change and renewal. Specifically, he studies how diversified firms reallocate and redeploy resources as environments and technology change. Niklas’ research has been published in the Strategic Management Journal (SMJ) and other leading management journals, and covered by the media, such as by the Financial Times. Both his research and teaching have received multiple competitive awards. Prior to academia, he worked for the strategy consulting firms McKinsey and BCG. Niklas has been a Visiting Scholar at the Wharton School, Georgetown University, and Copenhagen Business School.

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