Building a resilient organization through a pre‐shock strategic emphasis on innovation

Engelen, Andreas; Huesker, Constantin; Rieger, Verena; Berg, Victoria Article — Published Version Building a resilient organization through a pre‐shock strategic emphasis on innovation Journal of Product Innovation Management Provided in Cooperation with: John Wiley & Sons Suggested Citation: Engelen, Andreas; Huesker, Constantin; Rieger, Verena; Berg, Victoria (2023) : Building a resilient organization through a pre‐shock strategic emphasis on innovation, Journal of Product Innovation Management, ISSN 1540-5885, Wiley, Hoboken, NJ, Vol. 41, Iss. 1, pp. 36-61, https://doi.org/10.1111/jpim.12697 This Version is available at: https://hdl.handle.net/10419/288207 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ ORIGINAL ARTICLE Building a resilient organization through a pre-shock strategic emphasis on innovation Andreas Engelen | Constantin Huesker | Verena Rieger | Victoria Berg Department for Management, Heinrich-Heine-University Düsseldorf, Düsseldorf, Germany Correspondence Andreas Engelen, Department for Management, Heinrich-Heine-University Düsseldorf, Universitätsstraße 1, 40225 Düsseldorf, Germany. Email: [email protected] Associate Editor: Gaia Rubera Abstract Why are some firms more resilient when systemic shocks like the Global Financial Crisis (GFC) or COVID-19 pandemic set in? We approach this question by arguing that a firm's pre-shock strategic emphasis on innovation can mitigate the consequences of such shocks by facilitating stability and flexibility, major components of organizational resilience, as the shock sets in. We test our arguments empirically by analyzing data from 2003 to 2011 on as many as 994 firms from the S&P 1500 to identify the causes of their resilience during the 2008 GFC. Our findings indicate that pre-shock product introductions and, to some extent, top management's focus on innovation can facilitate stability and flexibility when a shock occurs, while R&D intensity and patents, other dimensions of a strategic emphasis on innovation, do so only when firm profitability before the shock is low. In this way, we direct innovation research's attention to the additional performance benefits of innovation activities when shocks occur and reveal which dimensions of a strategic emphasis on innovation buffer the negative consequences of a shock, thus providing insights into how innovation helps firms be resilient. Further, our theorizing and empirical findings unveil an intriguing paradox: While existing research tends to find positive associations between innovation and profitability in “regular”times, strong pre-shock profitability impairs innovation's ability to unfold its effects fully at shock onset. KEYWORDS new product introductions, organizational resilience in times of crisis, patents, R&D intensity, top management focus on innovation 1|INTRODUCTION The COVID-19 pandemic is the most recent example of a systemic shock with a global reach, yet far from the first one. In only the past 50 years, economies have dealt with many such shocks, including the OPEC Oil Price Shock (1973), the International Debt Crisis (1982), Black Monday (1987), the Asian Crisis (1997), the dot-com bubble (2000), the 9/11 attacks (2001), the Global Financial Crisis (GFC, 2008), and the COVID-19 pandemic. While such systemic shocks always threaten negative effects on many firms, some firms are better able to sustain their businesses and rebound from them than others. According to the theory of organizational resilience (Gittell et al., 2006; Sutcliffe & Vogus, 2003), a firm's preshock features can determine how well it endures and Received: 7 October 2021 Revised: 3 July 2023 Accepted: 7 August 2023 DOI: 10.1111/jpim.12697 This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited. © 2023 The Authors. Journal of Product Innovation Management published by Wiley Periodicals LLC on behalf of Product Development & Management Association. 36 J Prod Innov Manag. 2024;41:36–61. wileyonlinelibrary.com/journal/jpim recovers from such shocks. The literature identifies empirically a set of pre-shock features, especially its corporate social responsibility (DesJardine et al., 2019), its corporate governance structure (Buyl et al., 2019), and its CEO's characteristics (Patel & Cooper, 2014; Sajko et al., 2021), that help it endure shocks and bounce back from them. Unknown, however, is whether a pre-shock strategic emphasis on innovation, a major success factor in “regular”times (Rubera & Kirca, 2012), can foster organizational resilience during and after a shock. Sparing monetary resources and pursuing more down-to-earth activities may appear better preparations for possible shocks than investing in R&D and innovation (Archibugi et al., 2013). However, a pre-shock strategic emphasis on innovation may equip firms with such resources as ideas, technologies, stakeholder relationships, and innovationfriendly values, all of which might be helpful in mitigating the negative consequences of a shock. To address this discussion, we investigate several dimensions of a firm's pre-shock strategic emphasis on innovation. We relate to organizational resilience the resources that originate from innovation input (measured as R&D intensity), innovation output (measured as patents and product introductions), and top management's innovation focus (Griliches, 1998; Matzler et al., 2015; Rosenbusch et al., 2011). To capture organizational resilience, we follow DesJardine et al. (2019) and Sajko et al. (2021) in differentiating between stability, which manifests in reduced severity of losses, and flexibility, which manifests in faster recovery to the pre-shock state. While we expect generally positive associations, we embed our investigations in a contingency perspective by arguing that a firm's pre-shock profitability plays a major role in the effects of a pre-shock emphasis on innovation on the firm's resilience when a shock sets in. In line with the behavioral theory of the firm (Gavetti et al., 2012), Haleblian and Rajagopalan (2005) argue that strong firm performance increases persistence in a firm's behaviors and how it uses resources, while weak firm performance increases its openness to new approaches (Yu et al., 2019). Based on this notion and that leveraging pre-shock innovation-related resources requires a willingness to change, restructure, and shuffle innovation resources to respond to the shock and the dramatic change of conditions it entails (Vogus & Sutcliffe, 2007), we theorize that the resources a preshock strategic emphasis on innovation provides are particularly effective in creating organizational resilience when pre-shock firm profitability is not strong. We test our arguments by analyzing data from 2003 to 2011 on as many as 994 firms from the S&P 1500 to identify the causes of their resilience (or lack thereof) during the 2008 GFC that started on September 17, 2008, following Bank of America's acquisition of Merrill Lynch and Lehman Brothers' bankruptcy filing, both on September 15, 2008, and the U.S. Federal Reserve's bailout of American International Group (AIG) on September 16, 2008. We contribute to research in three ways. First, while research has investigated innovation's performance implications in “regular”times (Rosenbusch et al., 2011; Rubera & Kirca, 2012), research on innovation's role in absorbing the effects of shock is absent. We investigate this role of innovation using an organizational resilience lens (Ortiz-de-Mandojana & Bansal, 2016), which directs our attention to innovation's potential to foster stability and flexibility when a shock sets in. Second, we highlight an intriguing paradox in innovation's performance consequences in “regular”times and in times of crisis. 1 While existing research and our study find some positive associations between a strategic emphasis on innovation and profitability in “regular” times (Rubera & Kirca, 2012), our theorizing based on the behavioral theory of the firm (e.g., Gavetti et al., 2012) argues (and our empirical findings demonstrate) that strong pre-shock profitability, for example, by increasing strategic persistence, can impair innovation's ability to unfold its performance effects fully when a crisis sets in and conditions change dramatically. Third, we inform the literature on crisis management that the pre-shock level of firm profitability is a contingency factor in the effectiveness of antecedents that may 1 We are grateful to an anonymous reviewer for directing our attention to this paradox, which was implied in our arguments and empirical findings. Practitioner points •Innovation can mitigate the negative consequences of crises. •A strategic emphasis on innovation, especially the associated skills, processes and experiences, can serve as a kind of “insurance”against the next systemic shock. Executives who hesitate to dedicate resources and budgets to innovation should keep this additional benefit in mind. •Success can lead to underestimating innovation's potential. Firms with strong pre-shock performance should be aware of this potential “persistence trap”and find means to activate these innovation resources when the inevitable shock occurs. ENGELEN ET AL.37 mitigate the consequences of a shock (Yu et al., 2019). Based on Haleblian and Rajagopalan (2005), we establish theoretically and demonstrate empirically that the resilience-related effect of the pre-shock strategic emphasis on innovation during a systemic crisis is strongest when the firm also faces a firm-level crisis in terms of its individual performance, thus revealing that systemic shocks and firm performance interact. 2|CONCEPTUAL BACKGROUND AND HYPOTHESES 2.1 |The theory of organizational resilience Resilience refers to a system's ability to endure even in times of crisis and adversity and to recover after an external systemic shock (van der Vegt et al., 2015; Vogus & Sutcliffe, 2007). In management research, shocks often mean decreased availability of capital and decreased market demand for many organizations. Organizational resilience enables organizations to respond better to such adverse situations and recover more quickly from sudden downturns (Sutcliffe & Vogus, 2003). Organizational resilience can be conceptualized along two components: stability and flexibility (Ortiz-de- Mandojana & Bansal, 2016; Patel & Cooper, 2014). Stability refers to a firm's immediate reaction to an external shock, where organizations are considered stable if they can keep core functions and processes running during the shock (Weick et al., 1999). Flexibility addresses the post-shock path back to the pre-shock state, where organizations are considered flexible if they implement crisis-related changes quickly enough to adapt to the new situation before damage is done (DesJardine et al., 2019). Even when organizational resilience is disaggregated into stability and flexibility, it remains a latent construct that cannot be measured directly (Brand & Jax, 2007; Gunderson & Pritchard, 2002). Following DesJardine et al. (2019) and Sajko et al. (2021), we measure a firm's organizational resilience as the reaction of its stock price to a shock. Stock prices reflect investors' evaluation of businesses and their potential and incorporate all new information, including innovation-related information, so these prices reflect firms' overall situation (Hanssens et al., 2009; Sharma & Lacey, 2004). While controlling for many other factors in measuring resilience is necessary, the literature considers “stock prices [to be] among the best measures available to assess resilience in general crises”(DesJardine et al., 2019, p. 1457). The percentage drop in stock price, also referred to as severity of loss, proxies for the stability component, while the number of days it takes a firm's stock price to recover to its preshock level, also referred to as time to recovery, proxies for the flexibility component. Organizational resilience theory argues that an organization's pre-shock features are critical to how it performs once a systemic shock sets in (Sutcliffe & Vogus, 2003). However, van der Vegt et al. (2015) call for more quantitative research to explain what shapes firms' ability to “bounce back”to their original state when a crisis sets in. Some recent research addresses this call by investigating firms' pre-shock features, but four studies from the GFC context are particularly useful to our purpose. DesJardine et al. (2019) analyze how social and environmental practices were related to firms' stability and flexibility during the GFC and find that strategic practices were more effective than tactical practices. Also in the context of the GFC, Sajko et al. (2021) find that firms were less resilient when they were led by greedy CEOs, defined as those who engage in myopic behaviors and neglect corporate social responsibility. Focusing on banks during the GFC, Buyl et al. (2019) find that precrisis CEO narcissism led to a slower recovery. Since this association is mediated by the risk level of bank policies precrisis, the authors see the precrisis depletion of the banks' internal resources as a reason for these findings. Patel and Cooper (2014)show that CEO narcissism was negatively related to stability but positively to flexibility after a shock. While these four studies suggest that a firm's pre-shock features can absorb to some degree a systemic shock's negative consequences for a firm, Linnenluecke's (2017) review reveals that the effects of a firm's pre-shock resources and capabilities have not yet been addressed. 2.2 |Strategic emphasis on innovation and its dimensions A firm's strategic emphasis results from its decisions about how to compete and how to allocate resources internally (Jaworski & Kohli, 1993; Mizik & Jacobson, 2003). A strategic emphasis on innovation reflects the firm's decision to compete based on innovation and to allocate resources to innovation. Firms with a strong emphasis on innovation usually have the resources and capabilities to adopt new ideas and develop new products (Rosenbusch et al., 2011) and tend to outperform other firms in “regular”times (Sorescu & Spanjol, 2008), especially on metrics that capture innovations' business potential, such as firm value, but also (albeit to a lesser degree) on profitability-related metrics (e.g., Rubera & Kirca, 2012). It is useful to depict the dimensions of strategic emphasis on innovation comprehensively using the process by which innovation inputs (especially R&D intensity) translate into 38 JOURNAL OF PRODUCT INNOVATION MANAGEMENT innovation outputs (especially patents and product introductions), supported by top management's innovation focus (Griliches, 1998; Matzler et al., 2015; Wakasugi & Koyata, 1997). As an innovation input, R&D intensity captures the resources that a firm allocates to R&D and innovation activities (Sciascia et al., 2015). While R&D intensity does not necessarily translate into innovation outputs, it captures the resources available to the firm to develop new ideas and concepts and familiarize itself with the most recent technologies and scientific progress (DeCarolis & Deeds, 1999), so high R&D intensity adds to a firm's stock of innovation-related knowledge (Artz et al., 2010). Innovation outputs can be reflected in patents and new product introductions. Patents reflect the firm's ability to combine knowledge in a unique, non-obvious way and its willingness to protect its knowledge (Encaoua et al., 2006), while high-quality patents, as reflected, for example, in a high number of forward citations, indicate that the firm has particularly valuable and unique knowledge and technologies. The literature indicates that patents, especially those of high quality, increase the firm's reputation among stakeholders like employees and customers (Sommer et al., 2017). For their part, new product introductions, which refer to the commercialization of ideas into marketable products (Wakasugi & Koyata, 1997), translate into increased customer satisfaction and brand equity and improve employer branding, which attracts talent (Dotzel et al., 2013;Pauwels et al., 2004). Innovation inputs and outputs are embedded in the top management's focus on innovation. When top management has a strong innovation focus, it champions openness to change and experimentation (Garms & Engelen, 2019;Musteenetal.,2010; You et al., 2020). While these dimensions of a strategic emphasis on innovation tend to correlate, individual firms can score differently on these dimensions (Wagner & Wakeman, 2016). 2.3 |Pre-crisis strategic emphasis on innovation and organizational resilience The theory of organizational resilience proposes that resources that are developed before a shock are needed to facilitate stability and flexibility when a shock occurs (Buyl et al., 2019). Following this notion, we link the resources provided by a pre-shock strategic emphasis on innovation 2 to stability and flexibility as components of organizational resilience. A high degree of stability suggests that firms can maintain their core functions and processes, which reduces the severity of losses when a shock sets in (Sutcliffe & Vogus, 2003). DesJardine et al. (2019) indicate that robust and stable stakeholder relationships, among other factors, facilitate such stability. High R&D intensity before a crisis equips the firm with a pool of ideas and knowledge about, for example, recent technologies and scientific progress (Cui & Xiao, 2019). Even if the ideas and knowledge are not used in products in the precrisis phase, they can help to accommodate shock conditions when a shock occurs, such as by helping customers reduce costs with innovative ideas immediately, thereby keeping existing customers, maintaining the business, and reducing the severity of loss (Roberts, 1991; Shane, 2000). When a firm's pre-shock R&D intensity is low, it must invest to build the ideas and knowledge needed to react to the crisis, thus compromising the stability component of organizational resilience. We expect that a strong pre-shock stock of patents, especially high-quality patents, will absorb the negative effects of a shock, as customers and employees will be likely to remain loyal, leading to stable sales even at the onset of a crisis (Andreassen & Lanseng, 2010). Further, the more patents a firm has, the more opportunities it has to sell or license them to gain immediate cash flows that can be used to mitigate loss and the negative effects of a crisis (Arora et al., 2001) and to increase stability. Product introductions that are made pre-shock are likely to create for customers an image of an innovative company whose products serve their needs better than its competitors do, increasing customer satisfaction (Rubera & Kirca, 2017), binding customers to the firm when the shock sets in (Stock, 2011), and reducing losses, thus fostering stability. When precrisis product introductions are few or absent, a firm is likely to offer ordinary, even outdated products that customers, who are also hit by the shock and need to streamline their own expenses, might replace with other products after the shock's onset, 2 To determine whether a strategic emphasis on innovation in a given year is “pre-shock”is only possible after the onset of a shock. Shocks are often unpredictable (Wenzel et al., 2021). For example, while some experts predicted that a virus pandemic was possible at some point, no one could know the exact time and magnitude of the COVID- 19-pandemic. The examples in the introductory paragraph of this manuscript are of eight large, systemic crises in the 50 years since the beginning of the 1970s. Assuming that the 5 years before a crisis are “pre-shock”years (Salvato et al., 2020), we conclude that many years were “pre-shock”and that an executive can realistically expect to face about two of such crises within the next decade. The literature typically considers the 5 years or so preceding a shock as “pre-shock”(Salvato et al., 2020; Wenzel et al., 2021). We also use the 5-year window prior to shock onset to measure the pre-shock strategic emphasis on innovation, but we weigh the scores of the years more immediately preceding the shock more heavily than we do the least recent years (Salvato et al., 2020). We provide robustness checks that use alternative time windows to capture the pre-shock period. See Section 3for more details. ENGELEN ET AL.39 increasing the firm's vulnerability and losses and decreasing its stability. Finally, top management that has a pronounced innovation focus is likely to inject confidence throughout the firm that it is able and willing to deal with uncertainty (Dyer et al., 2009). Uncertainty is seen as an opportunity, rather than a threat, ensuring that the crisis' onset does not hamstring the entire organization (Tellis et al., 2009). Quick corrective measures to accommodate the crisis enable it to react rapidly with creative ideas to keep customers, increasing stability (Devece et al., 2016). Firms whose top managers do not have an innovation focus are more likely to be paralyzed and destabilized at the onset of a crisis. Therefore, we propose: 3 Hypothesis 1a. A pre-shock strategic emphasis on innovation is positively associated with organizational stability once a systemic shock sets in. Flexibility, the second component of organizational resilience, manifests in shortening the time for a firm to return to its state before the shock (Brand & Jax, 2007; Patel & Cooper, 2014). Positive stakeholder relationships are, again, major drivers of this type of organizational resilience (DesJardine et al., 2019). Available resources (e.g., knowledge, technologies) at a shock's onset help the firm adapt to the new situation and speed recovery. When a firm has invested in R&D before a shock, it is likely to have extant ideas and ongoing R&D projects (Cui & Xiao, 2019; Ferrier, 2001) that can be recombined in innovative ways to deal with the new situation, enabling solutions that are tailored to the new situation and that speed recovery. When a firm has little prior knowledge about, for example, recent technologies and scientific progress and few ideas, it has a limited basis for such novel recombinations and few ideas about how to shuffle products and market offerings. Therefore, longer development cycles for new ideas are required, which curbs flexibility and recovery efforts. The more patents a firm has before a shock, the more unique knowledge and technology it has on which it can build, the greater its experience with pursuing knowledge combinations when a shock sets in, the shorter the time until it introduces the new offerings that will speed its recovery (Arora & Ceccagnoli, 2006; Artz et al., 2010). Further, high-quality patents that have been acquired pre-shock enhance a firm's reputation and facilitate the quest for partners (Hsu & Ziedonis, 2013) that can help to accelerate the development of new products or services. When a firm has few or no pre-shock patents, it needs time to develop the new knowledge that will help it recover and regain its previous performance levels, slowing recovery. The more product introductions a firm has pursued pre-shock, the more experience it has with customer preferences, their reactions to new products, and distribution partners, all of which facilitate the speedy development and introduction of new products (Artz et al., 2010; Kalia & Ahuja, 2002) that are adapted to shock conditions, enabling quick recovery. When a firm has introduced only a few products before the shock's onset, it has little current knowledge about and experience with customer reactions and few established processes and partnerships with which to bring to the market new products that are tailored to the crisis conditions. The resulting long development cycles limit its flexibility. Finally, top management teams that have an innovation focus promote experimentation and openness to new solutions (Kuratko et al., 2011) that enable their firms to develop new solutions that are tailored to the new situation and speed recovery (Dyer et al., 2009). Such openness enables firms to pursue cooperation with external partners and to use their resources to deal with the new conditions jointly and flexibly. Further, such top management teams' attention to innovative solutions increases the chances of finding new products that address the conditions of the shock (Ortiz-de-Mandojana & Bansal, 2016), increasing the capability to react quickly and flexibly. Overall, then, we expect: Hypothesis 1b. A pre-shock strategic emphasis on innovation is positively associated with organizational flexibility once a systemic shock sets in. 2.4 |The moderating role of a firm's pre-shock profitability To add precision to our research model, we investigate the role of pre-shock profitability as a major indicator of the firm's financial situation before a shock sets in (Yu et al., 2019). Existing research on crisis management shows that pre-shock profitability is often directly and positively related to organizational stability and flexibility after a systemic shock sets in (e.g., DesJardine et al., 2019; Gittell et al., 2006). Firms that have strong pre-shock profitability tend to be healthy businesses that can react effectively when a crisis occurs. Such firms tend to have the 3 We state overarching hypotheses that relate the pre-shock emphasis on strategic innovation to organizational resilience's components but test later the associations between the various dimensions of this strategic emphasis (e.g., R&R intensity, patents) individually to unveil the nuances of these associations and to determine which facets of such a strategic emphasis drive the outcome variables. 40 JOURNAL OF PRODUCT INNOVATION MANAGEMENT financial means to keep existing resources or even acquire new resources to help them react to the shock, facilitating stability and flexibility at the shock's onset. This notion, empirically backed by existing studies, suggests that preshock profitability can be a positive and direct driver of our dependent variables. 4 However, the question arises concerning whether pre-shock innovation and pre-shock profitability interact. Implicit in our argumentation about how the dimensions of a strategic emphasis on innovation translate into resilience at the onset of a shock is innovative firms' ability and willingness to recombine, shuffle, and use the innovation-related resources they built before the shock to accommodate the new conditions, mitigate its consequences, and recover quickly. While one might argue that firms can leverage their pre-shock innovations best when they are performing well (e.g., because of efficient processes), such firms may not always be willing or able to employ their innovation-related resources and capabilities in new ways once the shock sets in, which may reduce these resources' value in facilitating organizational resilience. This notion is in line with the behavioral theory of the firm, which suggests that past performance influences whether the firm is able to change strategically and use resources in new ways (Audia et al., 2000; Gavetti et al., 2012; Yu et al., 2019). Specifically, weak performance increases a firm's willingness to recombine and reshuffle its resources to accommodate the new conditions that are triggered by a crisis, facilitating a strategic emphasis on innovation's effect on resilience once a shock sets in. This effect occurs for two reasons. First, past profitability influences whether a firm fully recognizes the shock and its severity. While the repercussions of such major shocks as the GFC are evident in retrospect (Bundy & Pfarrer, 2015), individual firms might have struggled to understand the crisis's severity at its onset. Many experts were surprised by the GFC, so it is reasonable to assume that many firms were also surprised by the timing and magnitude of its onset (DesJardine et al., 2019). Haleblian and Rajagopalan (2005) argue that firms sometimes see crises, especially systemic crises like recessions and other economic crises that affect entire industries or countries, as likely to be transitory and not relevant to themselves, a notion that applies particularly when pre-shock profitability was strong. Strong past profitability can result in decreased information-seeking, which might lead to a firm's ignoring early alerts and the new environmental conditions and might hamstring the resources provided by the pre-shock strategic emphasis on innovation in accommodating the changed conditions. Second, the behavioral theory of the firm suggests that firms use their past performance and feedback about it to adjust their strategic approaches (Gavetti et al., 2012), including decisions about changes in their use of resources and capabilities. A firm that has enjoyed years of strong profitability before a shock can face pronounced resistance to strategic change when a shock occurs and could need time to understand the new conditions before it switches to crisis mode (Rajagopalan & Spreitzer, 1997;Zajac& Kraatz, 1993). Such a firm may be satisfied with its situation and conclude that its pre-shock approaches are still effective. As Miller and Chen (1994) argued “success can make managers so complacent, so content with the status quo that they resist change”(p. 3), reducing the effect of the resources gained from a pre-shock strategic emphasis on innovation. Specifically, we expect that strong pre-shock R&D intensity translates more strongly into stability at the onset of a shock when a firm was performing poorly before the shock than if it had been performing well. In this case, the firm is likely to be more willing to apply the ideas generated by strong R&D intensity pre-shock and to introduce new products to accommodate the new situation, thus facilitating stability. When a firm's pre-shock profitability is strong, it is less likely to be willing to tap into such ideas and knowledge to deal with the new conditions, which interferes with the corrective action needed to ensure stability at the onset of a shock. Patents translate into more stability only when the knowledge and technologies described in these patents are combined to create new ideas that are actually used in the marketplace (Artz et al., 2010; Srinivasan et al., 2008). When precrisis profitability is already low, the willingness to give up technologies that have been used heavily or to scan the patent portfolio for unused knowledge is greater (Haleblian & Rajagopalan, 2005;Yuetal.,2019), while such shifts in technology trajectories are less likely when the firm is riding high when the shock sets in. Pre-shock product introductions may increase customer satisfaction, but active management may be required to leverage the increase fully (Stock, 2011). When a firm's pre-shock profitability is low, the firm is likely to have been on alert before the crisis' onset and to have reached out to customers to deepen relationships, thus increasing the loss-limiting effect of product introductions. However, when the firm is financially successful before a shock, it is less likely to have worked to deepen customer relationships, so competitors may have an opportunity to win the firm's customers over by 4 While we do not present a hypothesis for pre-shock profitability's direct effect on performance at a crisis's onset, we capture the effect of preshock profitability on organizational resilience by means of a control in the regression analyses and find significant and positive direct effects. For more details, see Tables 3and 4in “Section 4.” ENGELEN ET AL.41 making offers that reflect the new conditions, thus limiting the potential of the firm's product introductions to reduce the severity of losses and ensure stability when a crisis occurs. We argued that top management's focus on innovation increases a firm's stability by, for example, injecting values like openness to new ideas into its communication and behaviors, which serve as reference points for employees' behaviors and decisions (Gumusluoglu & Ilsev, 2009; Yadav et al., 2007). We expect that such effects are particularly strong when a firm's pre-shock profitability is low and a shock's onset brings completely new conditions. In this case, the firm is uncertain about its prospects and needs direction, so middle managers and employees act decisively on what top management suggests (Kuratko et al., 2011). In addition, in such cases, the necessity to adapt (e.g., by turning to brainstorming for ideas to address the shock with corrective measures) is greater, increasing the effect of top management's focus on innovation and increasing stability. Therefore, we propose: Hypothesis 2a. The positive association between a pre-shock strategic emphasis on innovation and organizational stability is stronger when the firm's profitability before the shock is low. Pre-shock R&D intensity provides insights into technology trends and a pool of ideas to pursue when a shock occurs (Artz et al., 2010; DeCarolis & Deeds, 1999), but such intangible resources translate into flexibility only when they are used to accommodate the new situation the shock brings about. Deployment of combinations of pre-shock ideas and technology insights is more likely when a firm's pre-shock profitability is low than when it is high as the duration and magnitude of the combined firm-level and systemic crises are likely to be significant, which increases the firm's willingness to change and adapt to the shock quickly and, thus, the chances of a speedy recovery. A stock of (high-quality) patents enhances a firm's reputation and its access to partners with which to pursue joint projects and react flexibly to a shock's onset. However, even a good reputation requires that the firm reaches out to potential partners and is open to new cooperation (Wassmer, 2010). When a firm's pre-shock profitability is low, leveraging the firm's reputation and engaging in such activities are likely to be more important than when the firm's pre-shock profitability is high. In addition, strong pre-shock firm profitability may mask the consequences of a shock and lead to persistence in the kinds of behaviors (Lant & Mezias, 1992) that reduce the likelihood that the firm will react flexibly to new conditions by using existing patents' potential to speed recovery. A high number of precrisis product introductions can increase flexibility because of the connections built with customers and distribution partners pre-crisis (Bhattacharya & Sen, 2003). A firm whose profitability before the crisis is low is likely to be willing to tap into these networks when a shock occurs to generate the new insights that will speed recovery, even if doing so means it must give up proprietary product features. For the effect on the flexibility of top management's focus on innovation to unfold, middle management and employees must fully embrace values like experimentation and openness to change (Kuratko et al., 2011). When the firm is not riding high pre-shock, these groups are likely to have accepted the necessity to engage in innovation-related behaviors and to have already done so. Therefore, poorly performing firms may be able to count on such values as drivers of firm-level behavior at the onset of a shock, speeding recovery, while such effects are reduced when profitability was not a factor before the shock. Overall, then: Hypothesis 2b. The positive association between a pre-shock strategic emphasis on innovation and organizational flexibility is stronger when the pre-shock firm profitability is low. We summarize our research model in Figure 1. 3|METHODOLOGY 3.1 |Sample The GFC is an appropriate setting for testing our hypotheses as it was unprecedented in its magnitude, had a broad impact across industries, and happened unexpectedly. In line with prior work, we define September 17, 2008, as the starting date of the GFC, as that date followed both Bank of America's acquisition of Merrill Lynch and Lehman Brother's bankruptcy filings on September 15, 2008, and the U.S. Federal Reserve's bailout of AIG on September 16, 2008 (DesJardine et al., 2019). Investors withdrew $144 billion fromU.S.moneymarketfundsonthenextday,freezingthe short-term lending market that corporations need to fund their daily operations (Gullapalli & Anand, 2008). We constructed a cross-sectional sample of public U.S. corporations listed on the S&P 1500 by identifying the 1497 companies that were part of the S&P 1500 Composite Index as of September 16, 2008, 1 day before the GFC's onset. Then, we added information from eight data 42 JOURNAL OF PRODUCT INNOVATION MANAGEMENT sources to construct the required dependent, independent, and control variables. First, we added the entire Compustat database to our sample to obtain information on control variables and the firms' R&D expenses. Then we added daily stock price information from the Center of Research in Security Prices (CRSP) and found one security per company for 1343 of the firms and up to four securities for the remaining 154 companies. As companies' primary motivation for introducing additional share classes is to equip them with particular voting and dividend characteristics and these characteristics influence share price and stock performance, we worked with trading-volume-weighted stock prices to blend differences in stock prices and relative performance over time. Our stock price-based measures share the same characteristics as those calculated by DesJardine et al. (2019)andSajko et al. (2021). Next, we obtained patent data from the United States Patent and Trademark Office (USPTO) and included application, filing, and citation information. To ensure high-quality mapping, we linked Compustat and USPTO data with a publicly available crosswalk created and maintained by Kogan et al. (2017), verified 10% of the matches manually, and ran a statistical test to identify differences in means. In the next step, we used firms' public annual reports to measure strategy-related constructs using text analysis (McKenny et al., 2018) and added data from RavenPack News Analytics, which captures press releases and news articles from business newswires like The Wall Street Journal and Dow Jones Newswires (Guo et al., 2019). RavenPack's patented algorithm classifies news articles using a taxonomy of actions that overcomes manual coding challenges (Hill et al., 2019). These were available for a subset of 424 S&P 500 firms in our sample. Finally, we added information on top management team level, boardlevel, and firm-level control variables from Execucomp, Boardex, and KLD. 5 We dropped seven firms because of inconsistencies between data sources and dropped all firms with missing FIGURE 1 Overview of research model. 5 Certain information ©2021 MSCI ESG Research LLC. Reproduced by permission. Data used is the KLD STATS data provided by MSCI. We note that this data set is not related to the ESG ratings data also provided by MSCI. Also, although HHU—Heinrich-Heine-Universität Düsseldorf's information providers, including without limitation, MSCI ESG Research LLG and its affiliates (the “ESG Parties”), obtain information (the “Information”) from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and fitness for a particular purpose. The Information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for, or a component of, any financial instruments or products or indices. Further, none of the Information can in and of itself be used to determine which securities to buy or sell or when to buy or sell them. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. ENGELEN ET AL.43 TABLE 3 (Continued) Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Model 10 Intangible assets 0.003 (0.008) 0.004 (0.008) 0.001 (0.008) 0.001 (0.008) 0.001 (0.008) 0.001 (0.008) 0.008 (0.012) 0.008 (0.012) 0.011 (0.007) 0.007 (0.007) Slack resources 0.032* (0.016) 0.034* (0.015) 0.030* (0.015) 0.030* (0.015) 0.029* (0.015) 0.029* (0.014) 0.027* (0.013) 0.027* (0.013) 0.006** (0.002) 0.006** (0.002) Precrisis stock price 0.022 (0.012) 0.021 (0.012) 0.021 (0.011) 0.021 (0.011) 0.021 (0.011) 0.021 (0.011) 0.020 (0.014) 0.020 (0.014) 0.022 (0.011) 0.021 (0.011) SSEP 0.008 (0.011) 0.007 (0.011) 0.004 (0.010) 0.004 (0.010) 0.007 (0.010) 0.007 (0.010) 0.005 (0.012) 0.005 (0.012) 0.001 (0.007) 0.008 (0.007) TSEP 0.010 (0.008) 0.011 (0.01) 0.007 (0.008) 0.007 (0.008) 0.006 (0.008) 0.006 (0.008) 0.004 (0.010) 0.004 (0.011) 0.002 (0.006) 0.002 (0.006) CEO bonus share 0.004 (0.008) 0.005 (0.008) 0.003 (0.007) 0.002 (0.007) 0.001 (0.007) 0.001 (0.007) 0.009 (0.008) 0.008 (0.008) 0.005 (0.005) 0.005 (0.005) CEO option share 0.009 (0.007) 0.008 (0.007) 0.010 (0.006) 0.010 (0.006) 0.010 (0.006) 0.010 (0.006) 0.000 (0.008) 0.004 (0.008) 0.002 (0.005) 0.001 (0.005) CEO salary share 0.006 (0.007) 0.004 (0.007) 0.008 (0.007) 0.008 (0.007) 0.009 (0.008) 0.009 (0.008) 0.006 (0.009) 0.006 (0.009) 0.003 (0.006) 0.003 (0.006) Riskiness of policies 0.006 (0.007) 0.006 (0.007) 0.014* (0.01) 0.014* (0.008) 0.015 (0.008) 0.015 (0.008) 0.006 (0.009) 0.006 (0.009) 0.005 (0.005) 0.006 (0.004) Outsider director share 0.024** (0.007) 0.024** (0.007) 0.023*** (0.01) 0.023*** (0.007) 0.02** (0.007) 0.022** (0.007) 0.002 (0.008) 0.003 (0.008) 0.008 (0.005) 0.008 (0.006) Board size 0.009 (0.009) 0.012 (0.009) 0.011 (0.009) 0.011 (0.009) 0.010 (0.009) 0.010 (0.009) 0.014 (0.009) 0.014 (0.009) 0.007 (0.006) 0.006 (0.006) Board age 0.008 (0.008) 0.008 (0.008) 0.008 (0.007) 0.008 (0.007) 0.008 (0.007) 0.007 (0.007) 0.004 (0.008) 0.003 (0.008) 0.012* (0.006) 0.012* (0.006) Board tenure 0.008 (0.008) 0.009 (0.008) 0.003 (0.007) 0.003 (0.007) 0.005 (0.007) 0.005 (0.007) 0.012 (0.008) 0.012 (0.008) 0.006 (0.006) 0.005 (0.057) Industry dummies Included Included Included Included Included Included Included Included Included Included Year–month dummies Included Included Included Included Included Included Included Included Included Included Observations 487 487 586 586 573 573 424 424 994 994 Adjusted R 2 0.438 0.443 0.445 0.444 0.444 0.444 0.413 0.411 0.457 0.461 Fstatistic 6.924*** 6.945*** 6.792*** 6.696*** 6.648*** 6.560*** 4.499*** 4.439*** 10.289*** 10.339*** Note: ***p< 0.001. **p< 0.01. *p< 0.05. All numerical variables were standardized before running the models. Abbreviations: SSEP, strategic social and environmental practices; TSEP, tactical social and environmental practices. 50 JOURNAL OF PRODUCT INNOVATION MANAGEMENT TABLE 4 Regressions results with post-shock organizational flexibility as dependent variable (based on Cox model). Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Model 10 Main effects R&D intensity 0.032 (0.057) 0.042 (0.057) Patent count 0.096 (0.086) 0.109 (0.085) Patent quality 0.094 (0.052) 0.020 (0.053) New product introductions 0.261*** (0.074) 0.269*** (0.08) Top management focus on innovation 0.028 (0.052) 0.036 (0.052) Pre-shock firm profitability (PFP) 0.151** (0.058) 0.145* (0.059) 0.193* (0.085) 0.172* (0.083) 0.173** (0.056) 0.150** (0.057) 0.048 (0.138) 0.039 (0.150) 0.094 (0.056) 0.117* (0.057) Interaction effects R&D intensity PFP 0.157* (0.065) Patent count PFP 0.200* (0.081) Patent quality PFP 0.157** (0.061) New product introductions PFP 0.026 (0.073) Top management focus on innovation PFP 0.056 (0.041) Controls Firm age 0.073 (0.057) 0.081 (0.057) 0.084 (0.077) 0.087 (0.078) 0.107* (0.053) 0.103 (0.054) 0.088 (0.084) 0.085 (0.085) 0.034 (0.056) 0.031 (0.056) Firm size 0.032 (0.055) 0.025 (0.053) 0.140 (0.134) 0.124 (0.134) 0.128** (0.048) 0.134** (0.048) 0.399*** (0.115) 0.391*** (0.118) 0.031 (0.083) 0.017 (0.084) Capital intensity 0.044 (0.051) 0.069 (0.051) 0.034 (0.075) 0.060 (0.076) 0.074 (0.057) 0.096 (0.058) 0.093 (0.010) 0.973 (0.101) 0.019 (0.060) 0.018 (0.060) Financial leverage 0.041 (0.053) 0.030 (0.053) 0.019 (0.074) 0.017 (0.074) 0.018 (0.055) 0.012 (0.056) 0.345** (0.133) 0.346** (0.133) 0.076 (0.059) 0.076 (0.059) Intangible assets 0.070 (0.052) 0.073 (0.054) 0.017 (0.085) 0.045 (0.815) 0.007 (0.059) 0.034 (0.061) 0.053 (0.111) 0.054 (0.112) 0.101 (0.055) 0.085 (0.058) (Continues) ENGELEN ET AL.51 TABLE 4 (Continued) Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Model 10 Slack resources 0.066 (0.042) 0.042 (0.035) 0.090 (0.050) 0.072 (0.043) 0.066 (0.044) 0.058 (0.039) 0.128 (0.204) 0.132 (0.202) 0.101*** (0.027) 0.100*** (0.028) Precrisis stock price 0.237*** (0.070) 0.244*** (0.069) 0.207* (0.090) 0.216* (0.089) 0.184** (0.064) 0.195** (0.064) 0.020 (0.069) 0.022 (0.069) 0.146 (0.102) 0.142 (0.102) SSEP 0.045 (0.059) 0.026 (0.058) 0.023 (0.088) 0.022 (0.089) 0.022 (0.045) 0.027 (0.050) 0.134 (0.099) 0.126 (0.103) 0.000 (0.062) 0.005 (0.063) TSEP 0.137* (0.057) 0.140* (0.059) 0.170* (0.073) 0.187* (0.074) 0.173*** (0.046) 0.180*** (0.050) 0.125 (0.084) 0.121 (0.087) 0.087 (0.050) 0.091 (0.050) CEO bonus share 0.021 (0.057) 0.025 (0.057) 0.050 (0.064) 0.048 (0.067) 0.033 (0.057) 0.031 (0.057) 0.125 (0.092) 0.124 (0.091) 0.056 (0.050) 0.059 (0.050) CEO option share 0.057 (0.102) 0.068 (0.102) 0.126 (0.094) 0.126 (0.095) 0.125 (0.093) 0.126 (0.094) 0.111 (0.076) 0.113 (0.076) 0.029 (0.065) 0.028 (0.064) CEO salary share 0.091 (0.072) 0.073 (0.071) 0.073 (0.97) 0.070 (0.096) 0.105 (0.067) 0.114 (0.067) 0.065 (0.089) 0.069 (0.090) 0.049 (0.060) 0.053 (0.061) Riskiness of policies 0.008 (0.042) 0.023 (0.042) 0.094 (0.063) 0.113 (0.064) 0.094* (0.048) 0.104* (0.048) 0.042 (0.072) 0.044 (0.073) 0.024 (0.042) 0.020 (0.043) Outsider director share 0.164** (0.051) 0.168** (0.051) 0.043 (0.071) 0.048 (0.071) 0.048 (0.052) 0.056 (0.052) 0.055 (0.076) 0.052 (0.078) 0.029 (0.047) 0.024 (0.047) Board size 0.088 (0.062) 0.060 (0.061) 0.025 (0.076) 0.025 (0.077) 0.029 (0.053) 0.019 (0.053) 0.213** (0.077) 0.214** (0.082) 0.116* (0.057) 0.120* (0.057) Board age 0.029 (0.050) 0.028 (0.054) 0.051 (0.069) 0.054 (0.069) 0.025 (0.054) 0.021 (0.054) 0.117 (0.078) 0.113 (0.080) 0.081 (0.050) 0.085 (0.050) Board tenure 0.023 (0.053) 0.023 (0.054) 0.072 (0.064) 0.089 (0.064) 0.083 (0.051) 0.094 (0.051) 0.034 (0.070) 0.036 (0.070) 0.016 (0.048) 0.016 (0.048) Industry dummies Included Included Included Included Included Included Included Included Included Included Year–month dummies Included Included Included Included Included Included Included Included Included Included Observations 487 487 586 586 573 573 424 424 994 994 Pseudo R 2 0.423 0.429 0.328 0.338 0.343 0.349 0.483 0.483 0.298 0.300 LR test 267.540*** 272.879*** 232.880*** 241.470*** 240.850*** 245.710*** 279.680*** 279.820*** 351.150*** 354.040*** Score (log rank) test 1053.440*** 1057.740*** 1301.370*** 1308.560*** 1264.320*** 1269.020*** 355.940*** 356.010*** 415.330*** 418.860*** Note: ***p< 0.001. **p< 0.01. *p< 0.05. All numerical variables were standardized before running the models. Abbreviations: LR test, likelihood ratio test; SSEP, strategic social and environmental practices; TSEP, tactical social and environmental practices. 52 JOURNAL OF PRODUCT INNOVATION MANAGEMENT and 8). While strong pre-shock profitability hamstrings innovation's ability to increase stability, the slopes in Figure 2also show that firms that have strong pre-shock profitability always perform better overall. The regressions with flexibility as the dependent variable (Table 4) show that the interactions of preshock firm profitability with R&D intensity (0.157, p< 0.050; model 2), patent count (0.200; p< 0.050; model 4), and patent quality (0.157, p< 0.010; model 6) are all negative and significant. The slope analysis in Figure 3indicates that the effects of these three dimensions of a strategic emphasis on innovation are positively related to flexibility only when pre-shock firm profitability is low, while these positive associations reduce and even disappear with increasing pre-shock profitability, in line with H2b. For firms that have very high levels of pre-shock profitability (those in the 90th percentile), the associations of R&D intensity, patent count, and patent quality with flexibility even become negative, a finding to which we return in our discussion section. Again, the slopes show that firms that have strong pre-shock profitability tend to perform better overall. Table 5summarizes the findings for both components of organizational resilience and the dimensions of the strategic emphasis on innovation. 4.5 |Robustness checks Although we used a rich set of controls, omitted variable concerns may remain (Antonakis et al., 2014). To address this threat, we used the “robustness of inference to replacement”(Busenbark et al., 2022; Frank et al., 2013) and quantified for all regressions that had significant hypotheses-related effects, the endogeneity-related bias that would be necessary to invalidate our inference. We found that, to invalidate new product introductions' positive association with post-crisis stability, 27.90% of the related estimate would have to be due to endogeneityrelated bias. Table 6presents these values for all significant effects. The second-lowest value is 18.08%, a value that existing research considers robust (e.g., Busenbark et al., 2017). However, the relationship between R&D intensity and stability could be invalidated if only 2.28% of the estimate were due to bias, so we find insufficient support for H1a for this independent variable. Instead of differentiating between TSEP and SSEP, we also ran our regressions with an aggregate corporate social responsibility measure that is based on the measure Sajko et al. (2021) suggest, and our findings remained stable. The same held true when we replaced the independent variable top management's innovation focus with other innovationrelated measures like resource and capability development FIGURE 2 Interaction effects with stability as dependent variable. ENGELEN ET AL.53 and business model innovation asofferedbyEklundand Mannor (2021). Again, results remained stable. While we used established measures for patent count and patent quality, an alternative measure for innovation output is the quotient of patent quality and patent count, that is, the average quality of each patent. However, this variable is related to neither flexibility nor stability at a crisis's onset in our data, which suggests that it is the preshock volume of innovation output, rather than the ability to produce (potentially few) high-quality outputs, that is important to the ability to react to a new shock. Finally, as we included a high number of control variables, we used variance inflation factors (VIFs) and Kalnins' (2018) criteria to understand potential FIGURE 3 Interaction effects with flexibility as dependent variable. 54 JOURNAL OF PRODUCT INNOVATION MANAGEMENT multicollinearity concerns. First, we calculated VIFs for all relevant models and found that VIFs remained below 10 (with VIFs ranging between 1.074 and 7.588), indicating that multicollinearity is not likely to be an issue. Still, we also considered for each of our key independent variables in relation to all other variables the three criteria Kalnins (2018) provides: (1) correlations between two independent variables are equal to or higher than 0.300, (2) the beta coefficients of the variables are of the same sign if they correlate negatively or of opposite signs if they correlate positively, and (3) the correlation of one of the independent variables with the dependent variable is of the opposite sign compared to the beta coefficient. We identified two controls that might cause multicollinearity concerns: SSEP and TSEP. When we removed them, the results remained consistent. 5|DISCUSSION Why are some firms more resilient than others when a systemic shock sets in? The present research addresses this question by linking firms' pre-shock strategic emphasis on innovation with organizational resilience after the onset of a shock. We found that various dimensions of a preshock strategic emphasis on innovation facilitated organizational resilience when the shock set in. However, direct associations were present only between new product introductions and both flexibility and stability, and between top management's innovation focus and stability, while the other dimensions translated into stability and flexibility only when the pre-shock firm profitability was low. 5.1 |Research-related implications Ourfindingscontributetoresearchinthreemajorways. First, we add to the literature on innovation's performance implications, which currently focuses primarily on innovation's (mostly positive) associations with various metrics of firm performance (e.g., profitability and firm value) in a variety of contexts (Rubera & Kirca, 2012; Sood & Tellis, 2009), but typically in non-shock times. The organizational resilience lens directs our attention to innovation outcomes that the literature does not address by relating a firm's strategic emphasis on innovation along various dimensions to stability and flexibility when a systemic shock—in our case, the TABLE 5 Overview of hypotheses-related findings. Dimensions of pre-shock emphasis on innovation Stability Flexibility H1a and H2a H1b and H2b R&D intensity Positive only when pre-shock firm profitability is low Positive only when pre-shock firm profitability is low Patent count No effect Positive only when pre-shock firm profitability is low Patent quality No effect Positive only when pre-shock firm profitability is low New product introductions Positive direct effect regardless of preshock firm profitability Positive direct effect regardless of pre-shock firm profitability Top management innovation focus Positive direct effect across levels of pre-shock firm profitability, effects stronger when pre-shock firm profitability is low No effect TABLE 6 Bias necessary for hypotheses-related inference to be invalid. Stability Flexibility H1a and H2a H1b and H2b Main dependent variable Direct effect Interaction term with profitability Direct effect Interaction term with profitability R&D intensity 2.28% 18.08% n/a 18.89% Patent count n/a n/a n/a 20.13% Patent quality n/a n/a n/a 24.13% New product introductions 27.90% n/a 44.05% n/a Top management innovation focus 41.45% 37.44% n/a n/a Note: Evaluation is based on a significance level of α=0.05; n/a =not significant in main regressions (Tables 3and 4) and therefore not part of this analysis. Direct effects are evaluated based on models including only direct effects. ENGELEN ET AL.55 GFC—sets in. That is, innovation is not only a source of competitive advantage in normal times but also protects the corporate against unexpected systemic shocks. By comparing the various dimensions of a strategic emphasis on innovation, we learn that the pre-shock number of product introductions is the only universal driver of stability and flexibility, regardless of firms' pre-shock firm profitability. Product introductions stand out against the other dimensions of a strategic emphasis on innovation by creating connections to distribution partners and customers and improving the firm's reputation based on products commercialized in the market. In contrast, patent activities, for example, relate to internal innovation resources and knowledge creation and protection, not necessarily to activities that are directed to partners and customers. Unlike most of the other innovation variables we covered, pre-shock product introductions provide experience and skills in market introductions and opportunities to learn from and interact with customers. These activities and the relationships built with stakeholders appear to be major innovation-related drivers of stability and flexibility at the shock's onset. The moderating analysis adds to these insights that most other dimensions of strategic emphasis on innovation only translate into stability and flexibility when preshock firm-level profitability levels were rather low. These findings suggest that these dimensions, that is, R&D intensity and patent count and quality, create resources that do not automatically help the firm in shock onsets, but that specific conditions for their deployment are necessary (Vogus & Sutcliffe, 2007). As our arguments and findings demonstrate, such an “activation”can be the result of a low pre-shock firm-level profitability. Second, using arguments from the behavioral theory of the firm (Gavetti et al., 2012;Yuetal.,2019), we contribute to the literature on innovation's performance outcomes by identifying an intriguing paradox related to innovation's consequences in “regular”times and in times of crisis. The paradox manifests in the observation that some dimensions of a strategic emphasis on innovation can be positively related to profitability in “regular”times,whichissuggested by some positive correlations (Table 2) and corroborated by existing literature (e.g., Rubera & Kirca, 2012). This increased profitability then reduces the effects of some innovation dimensions on organizational stability and flexibility once a shock sets in. Thus, innovation can create its own limitations when conditions shift dramatically from “regular”times to the onset of a crisis. While these findings may seem counter-intuitive at first, the behavioral theory of the firm argues that strong past profitability creates an unwillingness to use (innovation) resources in new ways (Gavetti et al., 2012; Rajagopalan & Spreitzer, 1997)thatmaybe necessary at the onset of dramatically new conditions. This paradox can unfold particularly in firms that have strong pre-shock R&D intensity, high patent counts and patent quality, and exceptionally strong pre-shock profitability (firms in the 90th percentile). In these cases, strong pre-shock innovation can even have a negative effect on flexibility when a crisis occurs (Figure 3). A firm's positive pre-shock financial situation, combined with strong innovation investment and patent performance, might make the firm complacent and convinced that it is too outstanding to be affected by changing conditions. This conviction and the unwillingness to shuffle innovation-related resources expose the firm to the full negative consequences of a crisis. Even so, this paradox should be interpreted with several boundaries in mind: Not all dimensions of a strategic emphasis on innovation are consistently positively related to profitability either in our data, as the correlation table suggests, or in the broader literature (Rosenbusch et al., 2011). When the association between innovation and profitability is absent or weak in “regular”times, the paradox is weak or disappears. Further, firms that have strong pre-shock profitability (along with others that benefit from pre-shock innovation) still perform better at the beginning of a crisis than firms that have low pre-shock profitability do, as indicated by the strong direct associations between pre-shock profitability and performance in acrisis(Figures2and 3). Only a performing firm's innovation potential is not fully leveraged when a crisis sets in, as the net effect of pre-shock profitability remains positive. Further, we find the paradox in our data only for R&D intensity and the patent-related variables, a finding that resonates with our theoretical understanding that the onset of a crisis requires revising how existing resources are deployed. R&D intensity and the patent-related variables are not helpful per se; they must be adapted to the new situation the shock triggers. When a firm is not willing to use these resources differently to accommodate the crisis, as could be the case for a strongly performing firm, its innovation-related resources have little value. We do not find such a paradoxical effect in our data for new product introductions, perhaps because such introductions before a shock create an image of innovativeness among stakeholders that remains after the shock sets in, even without the firm's making any adaptations. Third, we contribute to the crisis management literature by revealing interactions between firm performance and a systemic shock that jointly determine the consequences of a crisis for a firm. Thus, our research integrates studies of crisis that focus only on firm-level crises (e.g., O'Brien & David, 2014) or systemic shock (e.g., Patel & Cooper, 2014). It follows that systemic crises touch firms differently based on the firms' pre-shock profitability. The “total level”of a crisis determines the 56 JOURNAL OF PRODUCT INNOVATION MANAGEMENT most effective deployment of the resources that were created before a systemic shock. The interplay of systemic and firm-level crises is a major threat to firms that have strong firm profitability before the onset of a systemic shock as these firms appear to have problems tapping into existing (innovation) resources and deploying them as the GFC shock came on, which suggests a hurdle they must overcome to switch to crisis mode. 5.2 |Limitations and avenues for future research Like all studies, our research comes with several limitations that provide avenues for future research. First, we investigate empirically pre-shock innovation's role in a shock in the context of the GFC. While we believe that many of our arguments and findings are transferable, future studies could verify our findings' generalizability by comparing innovation's role across other shocks to identify differences and commonalities. As such, the COVID-19 pandemic differed from the GFC crisis by coming in cycles, with the winters' being the most severe phases in some countries and the summers' being more relaxed. Future research might investigate how such cycles within a crisis affect innovation's potential to mitigate the negative consequences of a crisis. Second, our findings are derived empirically in the context of large, publicly listed companies. While our sample covers a large part of the U.S. economy, findings may change in the context of small and medium-sized firms. Smaller firms might be more flexible when a shock comes along and use their innovation resources better than larger firms do (Aldrich & Auster, 1986). On the other hand, these firms tend to have fewer financial and innovation-related resources, which might require different approaches when a shock sets in. Third, based on Haleblian and Rajagopalan's (2005)concept of strategic persistence, we focused on one major contingency variable, pre-shock firm profitability. Future studies could take alternative views on our direct associations by, for example, analyzing whether the type of CEO (e.g., in terms of personality) determines firms' ability to activate innovationresourceswhenashocksetsin.Forexample,a CEO whose personality is characterized by strong openness to change or future orientation (Yadav et al., 2007)might increase pre-shock innovation's effect on organizational resilience by providing the resources to activate the firm's innovation resources and by contributing ideas. Finally, we shed additional light on the role of pre-shock firm profitability by demonstrating that strong profitability reduces the positive effect of innovation on organizational resilience, indicating that pre-shock firm performance has a complex influence on how well a firm sustains a crisis. While our focus is on explaining innovation's role, future research could build on our findings to unpack the underlying processes. For example, could executives' overconfidence that arises from past successes lead to persistence, or do certain corporate cultures emerge in times of strong performance that increase persistence and reduce the likelihood of undertaking new directions? 5.3 |Managerial implications We listed eight large systemic shocks in the last 50 years. Assuming that executives spend about 25 years of their careers in executive positions, they are likely to experience about four of such shocks, so they must know how to deal with their potentially negative effects. For these executives, our study offers three important messages. 5.3.1 | Innovation softens shocks Firms tend to reduce R&D budgets when a systemic crisis sets in (Archibugi et al., 2013), which suggests that executives believe that innovation is not helpful in a crisis. While we did not analyze R&D budgets when crises have already set in, we put in context this wisdom as innovation plays an important role in mitigating the negative consequences of crises. 5.3.2 | A strategic emphasis on innovation provides “insurance” Executives are certainly aware that a strategic emphasis on innovation is important in “regular”times, but our findings inform them about the major additional benefit of innovation as a way to offset the negative consequences of shocks. Executives should take these potential benefits into account when they calculate the pros and cons of investing in innovation activities. Given the high incidence of systemic shocks, many years are pre-shock years, so a strategic emphasis on innovation, especially the associated skills, processes, and experiences, can serve as a kind of “insurance”against the next systemic shock. Executives who hesitate to dedicate resourcesandbudgetstoinnovationduring“regular”times should keep this additional economic benefit in mind. 5.3.3 | Success can lead to underestimating innovation's potential While positive pre-shock profitability has certain positive effects when shocks set in, our findings indicate that, ENGELEN ET AL.57 during the GFC shock, resources like the knowledge, ideas, and technologies that resulted from pre-shock R&D or that were codified and protected in patents were not fully exploited. Our findings suggest that only firms that had low pre-shock profitability fully activated such resources to recover from the shock. Therefore, firms that are riding high should be aware of this potential “persistence trap” and find means to activate these innovation resources when the inevitable shock occurs. As such, engaging external support to investigate the full potential of existing R&D investments and patents in dealing with crises might be useful. ACKNOWLEDGMENTS Victoria Berg thanks the Technical University of Dortmund, as parts of the research were conducted during a research stay at this institution. Open Access funding enabled and organized by Projekt DEAL. FUNDING INFORMATION Authors declare that this work has not received any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. CONFLICT OF INTEREST STATEMENT The authors have no conflicts of interest to disclose. ETHICS STATEMENT We have read and agreed to the Committee on Publication Ethics (COPE) international standards for authors. ORCID Andreas Engelen https://orcid.org/0000-0003-3460- 3750 Constantin Huesker https://orcid.org/0000-0002-8997- 4818 Verena Rieger https://orcid.org/0000-0001-6623-4043 REFERENCES Aldrich, Howard E., and Ellen R. Auster. 1986. “Even Dwarfs Started Small: Liabilities of Age and Size and Their Strategic Implications.”Research in Organizational Behavior 8: 165–186. Andreassen, Tor W., and Even J. 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