Unabsorbed slack resource deployment and exploratory and exploitative innovation: How much does CEO expertise matter?

Abstract

Unabsorbed slack resources are critical for organizational innovativeness and success but research regarding the relationship between unabsorbed slack and firm outcomes has resulted in mixed findings. We build on upper echelons theory to shed light on the mostly overlooked role of decision makers in slack resource deployment. We investigate how the CEO's expertise influences slack resource deployment in computer software firms' exploratory and exploitative activities. Using panel data, our findings show that unabsorbed slack is associated with an increased share of exploration and a decreased share of exploitation in firm's activities. These relationships are weakened in firms led by CEOs with longer firm tenure or wider functional background breadth. In the case of CEOs with technical education, the negative relationship between slack and exploitation becomes positive, while the link between slack and exploration becomes negative. Additionally, our post-hoc analysis reveals a more precise non-linear account of the main effect relationships.