THE EFFECTS OF SLACK RESOURCES AND ENVIRONMENTAL THREAT ON PRODUCT EXPLORATION AND EXPLOITATION GLENN B. VOSS Southern Methodist University DEEPAK SIRDESHMUKH North Carolina State University ZANNIE GIRAUD VOSS Southern Methodist University Euromed Marseille School of Management In a U.S. sample of nonprofit professional theaters, we examine how slack resources interact with environmental threat appraisal to influence product exploration and exploitation. We find systematic variation depending on the extent to which a resource is rare and absorbed in operations, and the extent of perceived environmental threats. Absorbed, generic resources are associated with increased exploitation and decreased exploration. Unabsorbed resources, both generic and rare, result in higher exploration and lower exploitation, but only when perceived environmental threat is high. Overall, results reveal pragmatic decision making balancing the benefits of superior strategic position against the risks of jeopardizing viability. The overall strategic emphasis of an organization is reflected in investments of resources in activities and processes that promote exploration or exploi- tation (Siggelkow & Levinthal, 2003). Exploration creates novel competencies that enable ongoing in- novation and generally results in superior long- term returns (Geroski, Machin, & Van Reenen, 1993). These benefits are balanced by the higher level of risk inherent in exploratory activities, which require significant investments with uncer- tain payoffs (Gupta, Smith, & Shalley, 2006). Ex- ploitation creates value through existing or mini- mally modified competencies that sustain long- term viability following successful exploration. Successful exploitation provides a buffer from the shocks of exploration and entails less risk than exploration (Gatignon, Tushman, Smith, & Ander- son, 2002). Past research has reported a positive relationship between slack resources and a variety of explora- tion activities, including innovation (Nohria & Gu- lati, 1996), risk taking (Singh, 1986), and adapta- tion (Kraatz & Zajac, 2001). However, other evidence suggests that the presence of slack can lead to cautious decision making and risk aversion, which reduce exploration (Mishina, Pollock, & Po- rac, 2004) and increase incremental adaptation, or exploitation (Tan & Peng, 2003). As these divergent findings suggest, whether organizational slack pro- motes exploration or exploitation remains an un- settled issue. In this research, we argue that the effects of slack on exploration and exploitation are best understood by focusing on specific properties of a slack resource and the environmental context facing an organization. We believe that the extent to which a slack resource is rare and the extent to which it is absorbed determine its interpretation and subsequent effects on product exploration and exploitation. We build on prospect theory and the threat-rigidity hypothesis to develop op- posing explanations for the moderating influence of environmental threat (Audia & Greve, 2006; Chattopadhyay, Glick, & Huber, 2001). We pro- pose that the framing effects of specific forms of slack resources determine whether organization- al decisions conform to predictions grounded in prospect theory or to predictions stemming from the threat-rigidity thesis. The results of the study help sort through oppos- ing views in two key areas of research, namely, the effects of slack resources on organizational deci- sion making and organizational responses to envi- ronmental threat. By systematically differentiating among specific forms of resource endowments, we The authors wish to thank Theatre Communications Group for supporting this research and the associate ed- itor and three anonymous reviewers for their construc- tive comments. The first two authors contributed equally.  Academy of Management Journal 2008, Vol. 51, No. 1, 147–164. 147 Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder’s express written permission. Users may print, download or email articles for individual use only.