Why do some firms struggle to reactivate idled resources? Exploring firm-specific sources of capability erosion and solutions

Why do some firms struggle to reactivate idled resources, while others do not? While prior theoretical work has pointed out that the cost of restarting operations rises with the duration of a temporary suspension, we build on the resource-based perspective to explore firm-specific sources of such time-dependent cost. Specifically, we posit that the duration of resource idling increases the intangible cost of restarting operations due to capability erosion. We argue that the negative effect of a firm’s idling duration on its capabilities is alleviated for firms with more homogenous assets relative to the focal asset being idled (i.e., resource fungibility), with greater non-idleness of similar resources, and with greater previous idling-reactivation experience. We empirically test and find support for our arguments using data of the full population of oil-gas wells drilled in Texas between 2010 and 2022. Our findings contribute to the strategic management literature by linking operational decisions to reactivate idled resources to firm-specific sources of performance heterogeneity and by shedding light on sources of capability erosion when adapting to changing environments.
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