Punctuated Equilibrium in Resource Allocation Patterns: The Reinvention of High-Performing Firms

Abstract

This paper examines how high-performing firms make significant, compact changes in resource allocation patterns in response to punctuated changes in their environments. The paper leverages illustrative evidence from three companies, to build a theoretical framework that explains why firms make sudden, significant changes in its resource allocation patterns over time. Using a large sample of publicly-traded manufacturing companies, the paper provides empirical evidence linking significant compact changes in R&D, advertising, and capital expenditures to superior firm performance.