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Investing in Capabilities: The Dynamics of Resource Allocation

Author

Listed:
  • Corinne A. Coen

    (Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106)

  • Catherine A. Maritan

    (Whitman School of Management, Syracuse University, Syracuse, New York 13203)

Abstract

In this research, we examine the dynamic capability of resource allocation to invest in operational capabilities. Using a computer simulation, we model a process of firms competing in factor markets for opportunities to invest in existing capabilities and acquire new ones. Based on the simulation results, we derive a set of propositions about the conditions under which there are and are not performance benefits from possessing a superior ability to search for new capabilities. Because the definition of what constitutes a new capability is based on a firm's preexisting capabilities, we also incorporate differences in initial endowments into the analysis. We find that endowment and search ability both matter, and that in many circumstances, the effects of possessing a superior endowment dominate the effects of superior search ability.

Suggested Citation

  • Corinne A. Coen & Catherine A. Maritan, 2011. "Investing in Capabilities: The Dynamics of Resource Allocation," Organization Science, INFORMS, vol. 22(1), pages 99-117, February.
    • Handle: RePEc:inm:ororsc:v:22:y:2011:i:1:p:99-117
    DOI: 10.1287/orsc.1090.0524
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