Capability Building in Sluggish Organizations

Kfir Eliaz, Ran Spiegler*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


In order to thrive, organizations need to build and maintain an ability to meet unexpected external challenges. Yet many organizations are sluggish: their capabilities can only undergo incremental changes over time. What are the stochastic processes governing “routinely occurring” challenges that best prepare a sluggish organization for unexpected challenges? We address this question with a stylized principal-agent model. The “agent” represents a sluggish organization that can only change its capability by one unit at a time, and the “principal” represents the organization’s head or its competitive environment. The principal commits ex ante to a Markov process over challenge levels. We characterize the process that maximizes long-run capability for both myopic and arbitrarily patient agents. We show how stochastic, time-varying challenges dramatically improve a sluggish organization’s preparedness for sudden challenges.

Original languageEnglish
Pages (from-to)1703-1713
Number of pages11
JournalManagement Science
Issue number3
StatePublished - Mar 2023


FundersFunder number
Foerder Institute for Economic Research


    • dynamic capabilities
    • organizational preparedness
    • periodization
    • sluggish adaptation
    • training programs


    Dive into the research topics of 'Capability Building in Sluggish Organizations'. Together they form a unique fingerprint.

    Cite this