Firm Performance During a Crisis: Effects of Adhocracy Culture, Incremental Product Innovation, and Firm Size

The government-mandated closure of U.S. restaurants for in-restaurant dining during the early stages of the COVID-19 crisis cast a spotlight on operators' ability to effectively innovate, and re-imagine their product offerings. In this context, this research draws on the resource-advantage theory of competitive advantage, proposing that (1) an adhocracy culture is a key internal resource that operators can leverage to drive rapid incremental product innovation under forced change, and (2) firm size is a contextual factor that moderates the degree of incremental product innovation-firm performance relationship. Findings from two empirical studies indicate that adhocracy culture positively and indirectly effects firm performance through degree of incremental product innovation, and that this effect is moderated by firm size. Larger firms yield superior performance effects due to access to a network of interconnected resources for rapid innovation diffusion in a crisis.