Document Type
Article
Publication Date
1-1-2011
Abstract
Managing the unexpected is relevant for all organizations and banks experienced this bitterly during the financial crisis of 2007-2009. In this study we argue that the organizational mindset driving unexpected results within the banking sector stemmed from an inability to anticipate and detect the early warning signals. The goal of this study was to gain insights into how successful banks are continuously "adaptive" in that banks with higher levels of absorptive capacity (ACAP) - the mechanisms used for sensing and experimentation of knowledge- are more likely to screen and acquire, assimilate, transform and exploit knowledge to positively influence performance. We also show that absorptive capacity is affected by three antecedents of risk, operating and learning orientation. Data obtained from a survey of 165 bank CEOs confirm that among excellent performing banks ACAP indeed enhanced the firm's performance during the banking crisis by reducing (negative) variance in profits. We also demonstrated the multi-dimensional mediated structure of ACAP and show that the three identified antecedents positively affect ACAP and consequently firm performance. This shows that ACAP integrates knowledge into firm routines as to help firm discriminate against surprises. The study also advances the empirical validation of ACAP construct and related measures. Several directions for future studies of the unexpected are proposed.
Keywords
risk management, absorptive capacity, knowledge flows, learning orientation, risk management and practices, mindfulness, performance under uncertainty
Rights
© The Author(s). Kelvin Smith Library provides access for non-commercial, personal, or research use only. All other use, including but not limited to commercial or scholarly reproductions, redistribution, publication or transmission, whether by electronic means or otherwise, without prior written permission is strictly prohibited.
Department/Center
Design & Innovation
Recommended Citation
Eastburn, Ronald W., "Managing (Detecting, Preventing, and Mitigating) the Unexpected: How Banks Managed the Financal Meltdown" (2011). Student Scholarship. 297.
https://commons.case.edu/studentworks/297