Give Them Some Slack - They're Trying to Change! The Benefits of Excess Cash, Excess Employees, and Increased Human Capital in the Context of Strategic Change
Kehoe, Rebecca R.; Bentley, F. Scott
[Excerpt] Human resource strategists perennially struggle with the issue of staffing levels, especially the difficult task of determining the number of people required to meet their units’ business goals. Should they go “lean and mean”, as the saying goes, or is it better to overstaff a bit – to build a little slack in the system? Theory suggests that the answer to this question is “it depends”. Units experiencing periods of stability with little change are advised to opt for the former approach in the interest of enhancing operational efficiency and minimizing labor costs. Those undergoing strategic change, however, would do better to build in some HR slack to allow for the allocation of talent to the exploration and early staffing of new initiatives without detracting from current operations. This notion of contingency has some empirical support with respect to financial slack, but to date there is no comparable research on HR slack. The study reported here fills this gap, while taking the additional step of exploring whether HR slack and financial slack have complementary effects on firm performance (see Figure 1 on page 2). Initially, the study examined whether the role of HR slack differed in firms that were and were not undergoing strategic change. Second, the analysis focused specifically on firms undergoing strategic transitions and explored two questions: (1) To what extent did the existence of financial slack affect the relationship between HR slack and firm performance? And (2) to what extent did it matter whether or not firms chose to allocate a significant portion of their financial slack to developing their human capital? To help answer these questions, the study relied on data provided by the Federal Deposit Insurance Company (FDIC) pertaining to 6,606 commercial banks covering a 12-year period between 2002 and 2014.
slack; cash; excess cash; human capital; strategy; strategic change; staffing; firm performance; performance management; change management