Impact of operational and marketing capabilities on firm performance: Evidence from economic growth and downturns

- Marketing and operational capabilities affect performance differently.
- The effects of capabilities on performance varies with economic conditions.
- The importance given to a function by top management impacts its capability.
- Capabilities can only be improved during periods of economic growth.

This paper examines how the importance given to operations and marketing functions impacts their capabilities and, consequently, overall firm performance. Using the resource-based theory (RBT) and top management team literature as a foundation, we explore the relationship between business factors under different economic conditions using panel data, to test whether the importance given to the operations and marketing functions leads to capability development in those functions. We also test whether these capabilities explain performance differentials between firms in different economic conditions. Our results show that marketing and operational capabilities both improve firm performance, though operational capability is more important during economic downturns. Also, we find that the importance given to operations and marketing functions impacts their capabilities during periods of economic growth. Our results have key implications for operations strategy, capability development, and resilience in the face of economic downturns.