Although the accrual of a greater fund of residual resources might be thought unproblematic, it is nevertheless conceivable that organizations can have “too much of a good thing”. Organizational slack may be bad for performance, on the one hand, because it leads managers to become complacent about the need to monitor performance improvement effectively, or, on the other, because it leads them to become overconfident in their ability to deliver more and better services. Empirical evidence on the relationship between objective measures of organizational slack and innovation in the private sector suggests that there is an inverted u-shaped relationship between slack and innovation (Nohria and Gulati 1996). It is highly plausible that this relationship will hold too for the connection between slack and
performance; and for this to be observed for subjective as well as objective measures of exogenous resource capacity. Managers’ perceptions of environmen-tal munificence are likely to reflect the extent to which they feel buffered from the vicissitudes of the external context by organizational slack (Bourgeois 1981). In such circumstances, managers may be especially prone to feeling confident in the ability of their organization to cope with exogenous pressures. Thus, a strong perception of munificence may lead inexorably towards the potential pitfalls of strategic inertia (Kelly and Amburgey 1991). Alternatively, if managers perceive the environment to be highly munificent they may adopt multiple new and innovative ways of working, which in turn can lead to problems of hyperactivity (Nohria and Gulati 1996), product proliferation and “overreach” (Barnett and Freeman 2001). Thus, environmental munificence will likely exhibit either a positive linear relation-ship with performance or an inverted u-shaped one.