Firm Stress, Adaptive Responses, and Unpredictable, Resource-depleting External Shocks: Leveraging Conservation of Resources Theory and Dynamic Capabilities

Abstract

A growing body of literature suggests that unpredictable, resource-depleting shocks – ranging from natural disasters to public health crises and beyond – require the firm to respond adaptively. However, how firms do so remains largely undertheorized. To contribute to this line of literature, the authors borrow from the conservation of resources (COR) theory of stress and the dynamic capabilities perspective to introduce the concept of firm stress – a state of reduced and irregular readiness firms enter into following unpredictable, resource-depleting shocks. Our theoretical model illustrates that firms must punctuate the stress state to adapt by first deploying a retrenchment response, thereby conserving resources and allowing the firm to consider how to best redeploy its dynamic capabilities to adapt. Subsequently, the firm can redeploy its capabilities and adaptively respond in one of three ways: exiting (reconfiguring resources for alternative use), persevering (reconfiguring resources for better use), or innovating (developing new resources). Overall, the authors offer a process model of firm stress and adaptive responses following an unpredictable, resource-depleting shock that paves the way for future research on stress in the strategy literature.

Citation

Bass, A.E., Milosevic, I. and DeArmond, S. (2023), "Firm Stress, Adaptive Responses, and Unpredictable, Resource-depleting External Shocks: Leveraging Conservation of Resources Theory and Dynamic Capabilities", Harms, P.D. and Chang, C.-H.(D). (Ed.) Stress and Well-being at the Strategic Level (Research in Occupational Stress and Well Being, Vol. 21), Emerald Publishing Limited, Leeds, pp. 1-16. https://doi.org/10.1108/S1479-355520230000021001