There’s no success like failure: organizational breakdowns and the development of new capabilities Open Access

Organizations often encounter failures that challenge their established routines and capabilities. These failures, while initially destabilizing, offer significant opportunities for change and innovation. Research has highlighted that organizations initially rely on default frames, narratives, and categories to make sense of failures (Maitlis and Sonenshein, 2010). When these default mechanisms fail, organizations must develop new frames through contingent coping practices (Hyndman et al., 2024; Steigenberger, 2015; Stieglitz et al., 2018).

Recent studies have shown that the way organizations make sense of failure can directly influence their ability to adapt and innovate, facilitating capability development (Hassan et al., 2023; Massie, 2021). Sensemaking has a pivotal role in the interpretation of ambiguous, or unexpected events (Dwyer et al., 2023; Maitlis and Christianson, 2014; Santos de Souza and Chimenti, 2024). Failures, as unexpected events, disrupt the taken-for-granted assumptions about the environment, creating a gap in understanding that requires resolution. When conventional sensemaking fails, managers shall intervene to address the disruption (Holt and Cornelissen, 2014; Weick and Sutcliffe, 2015). The process of managerial intervention during these failures has been explored in the literature, with a focus on how it can lead to capability development. Managers’ ability to frame failure, facilitate collective sensemaking, and deploy strategic coping mechanisms has been identified as critical in reconfiguring organizational routines (Salvato and Vassolo, 2017; Vergne and Durand, 2011). Failures, arising from either external or internal sources, act as stimuli for seeking new forms of sensemaking, especially when they impact interdependent processes within the organization (Massie, 2021). Such events can trigger collective sensemaking and the creation of new knowledge (Gasson, 2013; Ivory and Alderman, 2005; Robertson and Williams, 2006), ultimately leading to a reframing of organizational routines and capabilities (Hassan et al., 2023; Suddaby and Foster, 2017).

This reframing often requires organizations to adapt through the deployment of strategic coping mechanisms. Granlien et al. (2009) emphasize the importance of various coping strategies in managing failures and building resilience, which enables organizations to adapt and innovate. To survive and thrive after failures, organizations need to either reprioritize or develop new capabilities (Autio et al., 2000; Somwethee et al., 2023). However, it is crucial to understand how specific managerial actions during these failure events help shape these coping strategies and, ultimately, the development of new capabilities (Teece et al., 1997; Teece, 2017). The aim of this study is to examine how organizations transition between periods of gradual and radical change following a failure, with a particular emphasis on how managerial intervention facilitates the development of new capabilities during these transitions.

While existing literature has explored the concepts of organizational capabilities, and the processes of organizational change there is a significant gap in understanding how specific managerial actions during periods of failure contribute to the transformation of existing capabilities or creation of new ones. This gap emerges from:

First, limited insight into managerial cognition and intervention: While existing research recognizes the role of dynamic capabilities in organizational change (Baía and Ferreira, 2024; Eisenhardt and Martin, 2000; Teece et al., 1997), there is insufficient exploration of how managers actively intervene during disruptions to facilitate the development of new capabilities. This is particularly crucial in understanding how organizations can recover from failures and also turn failures into opportunities for growth (Salvato and Vassolo, 2017; Weick and Sutcliffe, 2015).

Second, the underexplored relationship between failures and capability development: Although failures have been identified as potential catalysts for change (Narasipuram et al., 2008; Weick, 2005), the specific mechanisms through which failures lead to the development of new capabilities are not well investigated (Chanda, 2024; Feldman and Pentland, 2003; Tripsas and Gavetti, 2000). The former literature lacks a clear framework that connects failure, managerial decision-making, and the evolution of capabilities. Understanding the role of managerial intervention in these processes is key to bridging this gap. Therefore, we aim to bridge this gap by addressing the following research question:

To address the question, we employed a multiple-case study design. This research proposes a framework that links managerial cognition during organizational failure to the development of new capabilities, filling a significant gap in the literature. Our findings reveal that managerial intervention facilitates the development of new capabilities.

We first discuss the theoretical background that we draw on in posing the research question and developing a conceptual framework. Following this, we elaborate on the research strategy, including the case selection criteria and data collection method. Finally, six case studies are introduced, and the capability development process is analyzed. The research framework will be revised based on the data analyses. The main findings, contributions, limitations, and some key implications are discussed. Finally, the paper offers insights for practitioners.

This paper addresses an important topic for change management research: Organizational failure can be the cause of change and innovation (Cubbage Sr, 2024; Smith, 2003). We argue that an explanation of change and innovation may lie in the process of the development of new capabilities. In this section, we will first review the literature on organizational capabilities. Then, organizational change through the lens of organizational capabilities will be reviewed. Finally, the initial research framework will be introduced.

Nelson and Winter (1982) conceptualize organizations as repositories of routines. Routines that are procedural, reciprocal, context-dependent, and path-dependent (Becker et al., 2005) embed organizations’ generic capacity (Juergensen et al., 2024; Levitt and March, 1988). Organizational capabilities have been conceptualized as a collection of routines (Bredillet et al., 2018; Salvato and Rerup, 2011; Zhang et al., 2023). Grant (1996) defines organizational capability as “a firm’s ability to perform repeatedly a productive task which relates either directly or indirectly to a firm’s capacity for creating value through effecting the transformation of inputs into outputs” (Grant, 1996, p. 377). This definition highlights the repetitive nature of capabilities, underscoring their foundation in routines (Winter, 2003). Salvato and Rerup (2011) discuss how changes in routines can lead to changes in capabilities and vice versa, illustrating the dynamic nature of organizational processes. Following former research, we define a capability as a collection of routines designed to produce a specific type of output.

Existing research distinguishes between dynamic capabilities and operational capabilities, adding further depth to our understanding of organizational change and adaptability (Helfat and Peteraf, 2003; Pitelis, 2022). Operational capabilities are responsible for creating routines (Zahra et al., 2006), while dynamic capabilities play a pivotal role in changing existing routines and capabilities (Cepeda and Vera, 2007). Eisenhardt and Martin (2000, p. 1111) define dynamic capabilities as “specific organizational and strategic processes” that transform existing best practices. Meanwhile, Teece et al. (2016, 1997, p. 515) describe them as the “ability to achieve new forms of competitive advantage.” Dynamic capabilities enable the reconfiguration of operational capabilities, thereby enhancing an organization’s adaptability (Clegg et al., 2022; Easterby-Smith et al., 2009; Schilke et al., 2018). Exploring the interplay between operational and dynamic capabilities provides a foundation for examining organizational change through the lens of capabilities.

Evolutionary theories view organizational change as a continual process (Demers, 2007; Farrell and Shalizi, 2012), with gradualism prevailing during long evolutionary periods. During these periods, adaptation and stabilization of any changes happen through incremental adjustments to routines and capabilities (Cordeiro et al., 2023; Vergne and Durand, 2010). Organizational members, during these phases, select different processes to elaborate systems and manage resources, ensuring adaptation and stabilization in evolutionary change.

However, this continuous change is not without disruption. Failures can disrupt associated capabilities. In response to these disruptions and to reduce ambiguity, organizations may develop new capabilities (Narasipuram et al., 2008; Weick and Sutcliffe, 2015). This aspect of change is crucial to understanding how organizations evolve over time.

Failures not only disrupt organizational routines but also create opportunities for capability change, which can occur in multiple forms. Existing literature distinguishes between capability refinement, redeployment, and transformation as distinct yet interconnected responses to disruption. Capability refinement involves incremental adjustments to existing competencies to enhance efficiency and effectiveness (Helfat and Peteraf, 2003). Capability redeployment refers to the reallocation of existing resources and competencies to new areas without fundamentally altering them (Najda-Janoszka, 2016). In contrast, capability transformation entails a more profound reconfiguration of organizational capabilities, often leading to the development of entirely new routines and strategic shifts (Teece, 2012). This study takes a holistic perspective by considering all three forms of capability change in response to failure. By integrating these perspectives, we highlight how organizations not only mitigate the negative effects of failure but also leverage them as a catalyst for adaptation and long-term growth.

Punctuated equilibrium theory introduces another dimension to organizational change. It is defined by long alternating cycles (gradual) of evolutionary changes at the organizational level, punctuated by shorter and more frequent interventions by top management (Gersick, 2020). During these periods of turbulence, executive and top leaders often engage in creative actions to transform strategies, systems, or structures (Tushman et al., 1986). These punctuated periods of change lead to macro-level shifts, representing radical innovation (Dewar and Dutton, 1986).

The focus of this study is on these macro-changes. A failure may affect the current practices of an organization, prompting a rethinking of the limits of existing capabilities and pushing organizations to transform existing capabilities or develop new ones (Tripsas and Gavetti, 2000). When key management punctuates the current routines and capabilities with dramatic shifts, macro-level changes occur (Figure 1). Punctuated equilibrium is a potent theory to examine the dynamics of alignment between organizations and their environment, offering a framework to understand organizational dynamics.

To provide a comprehensive framework for understanding how organizations manage breakdowns and foster innovation, the research framework has been developed. When a failure occurs, operational capabilities are disrupted, prompting organizations to seek new routines and capabilities to respond and adapt (Metcalfe, 1981; Meyer, 1982; Vaz et al., 2024). This is where the interplay between operational and dynamic capabilities begins. Our research framework focuses on failures as stimuli, highlighting how managerial intervention punctuates normal operations, aiming to transform existing capabilities.

Failure in our study is defined as events that significantly disrupt operational capabilities, considering both objective measures and subjective managerial perceptions. Objective criteria include measurable indicators such as missed performance targets, substantial deviations from planned outputs, and critical operational breakdowns (Cannon and Edmondson, 2001). These metrics were cross verified using archival documents, such as reports and meeting minutes, to ensure consistency and validity. Subjective perceptions were captured through interviews and focus groups, where managers and employees described instances they recognized as failures, focusing on their impact on organizational processes and goals. This dual approach acknowledges that while objective metrics are vital for identifying disruptions, subjective managerial interpretations are critical for understanding how failures are framed and addressed within organizations (Madsen and Desai, 2010). By integrating these criteria, the study captures a holistic view of failure, enhancing the robustness of the analysis and its implications for capability development.

Figure 1 demonstrates how organizations incrementally adapt and undergo significant transformations in response to major failure.

To address the important role of managers in organizational change, it is essential to recognize their central position in shaping the responses to failure and driving the development of new capabilities. Managers are key stakeholders in guiding organizational adaptation, as they influence the collective sensemaking processes and direct coping strategies in times of crisis (Salvato and Vassolo, 2017; Weick and Sutcliffe, 2015). Managerial cognition, which encompasses how managers interpret and respond to disruptions, plays a critical role in enabling organizations to transition between periods of gradual and radical change (Chia and Holt, 2006; Pettigrew, 2012). Furthermore, managers’ ability to intervene strategically during failures can directly impact the development of dynamic capabilities, particularly by fostering innovation and adapting routines to emerging needs (Teece, 2016). This highlights the significance of managerial intervention in reframing organizational challenges and providing direction for capability development, especially during turbulent periods. The theoretical framework will be strengthened by integrating these insights into the broader discussion of organizational change and capability development.

Grounded in evolutionary theory (Nelson and Winter, 1982) and punctuated equilibrium theory (Gersick, 1991; Yang and DiBenigno, 2024), and theory continuum (Edmondson and McManus, 2007), we aim to “explore how managerial intervention influences organizational transitions between periods of gradual and radical change following a failure, with a particular focus on the development of new capabilities”. Evolutionary theory suggests that organizations evolve through incremental changes driven by environmental shifts, with managerial intervention playing a critical role in the adaptation process (Nelson and Winter, 1982). Punctuated equilibrium theory, on the other hand, posits that organizations experience periods of stability interrupted by sudden, disruptive changes, which are critical for transforming capabilities (Gersick, 1991). The theory of continuum focuses on the range of organizational responses to disruptions and the factors that influence the intensity of change, offering a framework to understand how these responses evolve over time (Edmondson and McManus, 2007).

Using Edmondson and McManus (2007) theory continuum, this study achieves methodological fit within the intermediate theory, drawing from an existing body of research. A case study approach is selected to explore “the dynamics of a single setting” (Eisenhardt, 1989, p. 534), enabling a deeper understanding of the phenomena. The recursive interaction between early theory, case data, and extant literature facilitates provisional theory building (Eisenhardt, 1989; Nair et al., 2023). The organizations were selected from a larger pool that was approached, with those that chose not to participate when requested, excluded from the sample frame (Yin, 2009). Purposive sampling further chose the most information-rich cases for qualitative research purposes (Patton, 2002). Finally, six information reach organizations were selected for data collection. We sought to understand multilevel and dynamic changes within these organizations by using storytelling methods (Bietti et al., 2019; Boyce, 1995; Liu et al., 2012) to build case studies that facilitate theory building (Eisenhardt, 1989). In addition to interviews, focus groups, and observations, documentary analysis also helped to advance an in-depth understanding (Simons, 2009). The breakdown of data collection is shown in Table 1.

Observations across the six organizations took 2–5 h per session, in one day. We focused on key team meetings, strategy discussions, and operational reviews. These organizational events were selected to capture the processes of adaptation and change, recorded through detailed field notes and audio recordings (Czarniawska, 2004). The observational data were coded (using the same thematic framework applied to interview data), to facilitate cross-validation of findings (Miles et al., 2014). For document analysis, archival materials such as organizational reports, meeting minutes, change management records, and strategic plans were selected based on their relevance to our research, considering project period, content, and research relevance (Bowen, 2009). These documents were categorized thematically, and their insights were triangulated with observational and interview data to build a robust narrative (Yin, 2018). The integration of findings from these sources was iterative, involving recursive coding and pattern matching to refine emerging themes and ensure methodological rigor (Eisenhardt, 1989). The combination of these protocols enhances the credibility of our analysis.

Leaders and top management teams were asked to share their experiences. To limit bias during interviews, we invited multiple knowledgeable informants from across the organization (Graebner and Eisenhardt, 2004). The invitees were requested to exemplify specific situations not previously encountered by the organization. Following Helfat and Peteraf (2015), in interpreting the data we focused on the cognitive capabilities of top managers underpinning knowledge exploration. Practicing narrative research (Squire et al., 2008), different layers of meaning were investigated in the six cases (organizations). First, the data was analyzed using inductive and interactive processes (Strauss and Corbin, 1998). Then, we developed descriptive codes from the analysis of the interview texts. Using the research framework as a sensitizing device (Strauss and Corbin, 1998), descriptive codes were generated through a series of iterations (Eisenhardt, 1989) between literature consulted and data collected through interviews, document analysis, observations, and focus groups. Finally, the framework and propositions were re-checked against the data collected to find any discrepancies. Table 2 shows the total number of interviews, focus groups, and observed projects to repair failure in each organization.

The interview protocol used during the semi-structured interviews ( Appendix) included two main sections. Section one focused on the story of the breakdown, how it happened, and what its internal and external conditions were. Section two included the interviewees’ perceptions of the breakdown, all possible solutions, how the final solution was chosen, and what new processes, products, or services were developed. To capture how managers’ cognition changed operational capabilities, we enquired into the process of formation of new capabilities, the sources of innovative ideas, and what they would do in a similar situation in the future. We also analyzed the firms’ change management database and any other specific registry. Subsequently, we presented group feedback (Heller, 1998) to top management teams that were invited to share their experience with us in focus groups. The invitees were asked to exemplify different failures if there were modifications or shutdowns, as well as if there were any post-failure changes within the organization.

Prior research has investigated the key factors, causes, sources, and types of failure (Al-Ahmad et al., 2009; Gupta et al., 2019; Hughes et al., 2017; Pan et al., 2008; Pinto and Mantel, 1990). In this study, we investigated consequences rather than causes: how a shared understanding of failure enables organizations to reinvent practices through innovative coping strategies. Our goal in case selection was not to address the general causes of failure (quality issues or cost/time overrun) but to extend the theory (Yin, 2009). To minimize potential biases and ensure comparability, organizations of similar sizes, specifically SMEs, were selected for the study. To minimize potential biases and ensure comparability, organizations of similar sizes, specifically SMEs, were selected for the study. Former research suggests that organizational size can influence managerial decision-making and capability development, as larger organizations tend to adopt more formalized decision-making processes and structured approaches to capability development (Barker and Duhaime, 1997), while smaller organizations often exhibit more flexibility but face resource constraints that shape their capabilities (Aldrich, 1999). We were looking for failures that resulted in the development of new capabilities. All the failures stemmed from organizational anomalies, triggered by either supplier, customer requirements, or staff. These anomalies disrupted the usual organizational processes. As a result, organizations were compelled to reconfigure their macro-organizational processes.

The family company, established in 2005, provided comprehensive services supplying machinery, equipment design, installation, and commissioning of industrial projects. The core competency of the company is engineering knowledge and experience embedded in two teams of electrical/mechanical technicians. The company’s technicians were experts in designing smart systems, coding Programmable Logic Control (PLC), and manufacturing rotary equipment. All civil work, fabrication of non-core items, and Quality Control (QC) are outsourced. For instance, in equipment design and installation, the fabrication of bases, junction boxes, and stands is outsourced to local companies (sub-contractors). Such items are normally custom designed to fit the specific requirements of the main equipment. The company experienced delays and design mismatches in several cases. The reason was either the subcontractors’ misunderstanding of the requirements or weak communication during the fabrication process. In 2013, the company commissioned a 6-month project that took 8 months to complete because of design mismatches in junction boxes. The client abandoned the company and declined to participate in any future bids. Consequently, the board decided to expand its capabilities. Although the fabrication of equipment bases and junction boxes is not an expert job, the organization decided to acquire the relevant licenses, train their technicians, and develop their own specifications for in-house production of the items required to avoid the earlier failure. Now, after several years of experience, the company can provide a wide range of complementary products (junction boxes, bases, panels, etc.) to other companies.

The second case organization began its career as a construction company, designing villas in 1996. After a few years, they further developed their operational capabilities and access to finance, enabling them to build small units and apartments. In 2011, the board decided to expand its services from design and installation to manufacturing of steel components, encouraged by the increasing demand for steel structures in major cities. Their factory installed a production line for the main components in 2015. Some components, such as fittings and joints, were outsourced to reduce the cost and time of production. In several projects, they realized that the outsourced fittings sometimes did not match the main components, leading to the return of these fittings in bulk numbers. The number of mismatches increased. The first solution was to initiate quality control of the subcontractors’ production facilities, a solution that did not resolve matters. The number of fittings required for every single project was high as well as their variation. The types of fittings and joints required exceeded 120 variations.

The installation of several production lines to bring manufacture in-house would be a costly option given the number of variations. Warehousing all the fittings (including the most important components) was not an ideal option, given the high price of land around their factory. Their inventory had a limited capacity. The long lead times for prefabrication and delayed transporting of the fittings to sites were very disappointing for clients. The company’s response was to spend three months redesigning all the parts and fittings and categorizing the designs. They changed their production lines to be able to produce these categorized items and fittings to become independent of outsourcing for the fabrication of any parts.

Founded in 2002, the firm provides comprehensive Engineering, Procurement, and Contract Management (EPCM) services for chemical plants. A recurrent problem in all their projects was the calibration of measuring instruments (temperature, pressure, level, as well as the flow of liquids in production lines). Close to the main office for inventory of the devices was a workshop that provided calibration, packaging, and transport of devices to different sites. While their services are not specific to any specific climatic region, the measuring instruments are sensitive to variances in temperature and humidity. Consequently, the measuring instruments had to be installed in variable climate conditions (specifically in open plants). Consequently, most of the instruments had to be recalibrated on-site where the local climate conditions differed from those of the calibration workshop. The average number of instruments installed at a site could be more than 200. Recalibrating the instruments required many to be transferred from the site back to the main workshop. Careful carriage of the devices when transporting is very important; the impact of any force or sudden movement can destroy a calibration device. The firm had already lost much of its project budget through purchases of new calibration devices after the failure of models already shipped. The firm designed a specific mobile bench, with enough installation support for the devices, that could be easily mounted on any truck. The workshop in the main office was closed.

The company was founded in 2007 to produce specific monitoring devices in dentistry. The devices were sold with software that tracked systems and patients’ data. The products and the software were customized, and the company’s services extended over the product lifetime to support the system and maintain both hardware and software. The maintenance plans for each customer were established at the beginning of the contract. During the fabrication of the hardware and development of the software, the clients (dentistry clinics) asked for added features or changes to the original plans. Requests for the same changes occurred during most contracts, causing on average a 27% increase in the overall commissioning time, thus carrying significant costs. Convincing customers that the changes required were not as simple as changing a few lines of software codes became an everyday challenge. To decrease the number of changes during delivery and to let customers have a full overview of all services, the company designed a platform from which project features could be selected. The platform design was based on a flow diagram of the processes of fabrication and software development, allowing the customer to choose between pre-set options. While customers had many options for both hardware and software, the modular design of the platform limited the range of designs. Having some pre-set platforms and basic hardware options made it easier for the company to integrate the whole system. The average delivery time of commissions was reduced significantly because of the affordance of the platform.

As a branch of a holding company in the manufacturing industry, this firm provides services for installing, uninstalling, and transporting heavy machinery for manufacturing industries. Moving heavy fixed machinery to a new location requires detailed planning and fabrication of customized fittings and joints of very expensive machinery. Older systems’ spare parts often could be found, so a part must be fabricated in cases of a broken/missing part. The company had to spend time and budget on fabricating these parts. Normally, the managerial contingency budget is extinguished at the end of a contracted project. During the processes of installing, uninstalling, and transporting equipment, three civil, electrical, and mechanical engineering teams are involved in working on any specific project. These engineering teams need to work at different times in the overall process. For example, during the process of dismantling any installation, the electrical engineering team must first disconnect the system and move the sensors. Then the mechanical engineering team disassembles the parts, while finally, the civil engineering team moves the bases on which the equipment stands and repairs the foundations. The re-installation phase is a similar process in reverse. Procedures were reviewed, with projects being divided into typical sub-projects for which comprehensive handover procedures were developed and recorded. The new design of the sub-project task and handover procedure has been applied successfully since 2014.

A manufacturer of stationery recruited a team of quality control inspectors from a well-known company. Each batch of products was audited before packaging. Batches of products were customized for specific orders. The customers were hotels, different firms, and educational institutes that ordered their stationery with specifications of the desired size, features, and color, with their brand names printed on all the items. The external QC auditor (not a full-time job) had to check every batch of production. The QC company received production plans monthly and sent their QC personnel to the factory according to the planned schedule. There have been several occasions when the manufacturer has had to accept a customer’s urgent request for some items or an increase in the size of a batch. Consequently, the original production plans changed regularly. In 2012, the manufacturer asked the QC company to train and certify all process leads in the factory so that every process leader was authorized to inspect the input product/raw material of their unit. The line manager is still inspecting the final product. As a result, any change in the production plan would not affect QC time.

Several projects in all six organizations (cases) were studied to find the relation between the components of the research model. Table 3 represents failure, stimuli, the selected response, and the developed capability. We followed a systematic inductive approach to developing concepts during data analysis (Gioia, 2019; Gioia et al., 2013; Rheinhardt et al., 2018). To capture the interviewees’ experience, we developed a semi-structured interview protocol ( Appendix). The interview protocol was designed to reflect the research questions and generate data for coding (Strauss and Corbin, 1998). The first-order categories emerged from 25 interviews and 7 focus groups. The case data is summarized in Table 2.

By analyzing a pervasive set of first-order concepts, developing second-order themes, and conceptualizing aggregate dimensions, we created the foundations for data structure. The data structure illustrates the relationships among the second order themes and shows how the document and archival data analyses enhanced our understanding of the raw data, leading to the development of the research model (Gioia, 2021). By systematically analyzing documents and archival materials, we identified patterns and connections that were crucial for refining our research framework. This process allowed us to build a comprehensive model grounded in empirical evidence.

Additionally, this analysis helps us to “articulate and challenge assumptions underlying existing literature” (Alvesson and Sandberg, 2011, p. 267). According to Alvesson and Sandberg (2011), problematization involves critically examining and questioning the assumptions and conventional wisdom within existing literature. In our study, we applied this approach by analyzing documents and archival data to reveal underlying assumptions in the field of sense making, coping strategies, managerial cognition, and capability development. This allowed us to challenge these assumptions and offer new insights, thereby contributing to the evolution of theoretical understanding and refining the research model. Through using documents and archival data, we were able to critically examine, and question established theories and assumptions in the field. This approach not only validated our findings but also provided new insights that challenge traditional perspectives, thereby contributing to the evolution of theoretical understanding in the subject area.

To achieve rigor in qualitative research (Tallott and Hilliard, 2014; Tracy, 2010, 2019), the first-order codes were organized into second-order themes. Following Gioia et al. (2013), we began the coding process began a comprehensive open coding phase to identify the first-order categories directly from the data while analyzing the interviews’ recordings. These initial codes captured details across interview transcripts, observational notes, and document analysis. Then, a second-order analysis was conducted to identify emerging patterns and conceptual linkages, transitioning from descriptive to interpretive coding. For example, first-order categories such as “The story of the failure” and “incident report analyses” were grouped into second-order themes like “Failure Analyses”. Finally, these themes were synthesized into aggregate dimensions such as “Sensemaking of the breakdown”. To ensure rigor, this iterative process involved constant comparison within and across data sources, maintaining alignment with Gioia et al.’s (2013) principles of data-driven theory development. We utilized visual mapping techniques and coding matrices (Saldaña, 2021) to trace the transitions explicitly and consistently, which enabled theoretical abstraction. Future revisions included illustrative coding tables to enhance transparency and better demonstrate the progression from raw data to theoretical constructs. By formulating the dynamic relations between the themes and concepts, the overarching theoretical dimensions were extracted. Finally, the data structure was formulated in Figure 2.

Data analyses revealed that managerial intervention has three components: collective sensemaking of the failure, managerial cognition, and selection of coping strategies. Table 4 exemplifies the quotes from the interviewees that illustrate how the mentioned managerial intervention dimensions were conceptualized.

Sensemaking is a critical process through which organizational members collectively interpret and understand unexpected events, especially failures. According to Weick (1995, 2011, 2012), reality is interpreted by pooling the collective experience of organizational members. This process is crucial when organizations face failures, as such unanticipated events often disrupt normal capabilities, necessitating the search for new forms of sensemaking (Cook and Brown, 1999; Lave and Wenger, 1991; Maitlis and Christianson, 2014; Marshall and Rollinson, 2004). Maitlis and Christianson (2014) define sensemaking as “the process through which people work to understand issues or events that are novel, ambiguous, confusing, or in some other way violate expectations” (p. 57).

In situations where existing procedures fail, organizational members initially rely on default frames, narratives, and categories to make sense of what went wrong (Maitlis and Sonenshein, 2010). However, when these frames fail, the organization engages in reframing sensemaking processes (Drazin et al., 1999) to develop new, more resilient processes (Holt and Cornelissen, 2014; Pflügler et al., 2018). This reframing allows the organization to cope with the failure, learn from it, and create new frames and narratives that can better handle future crises (Stieglitz et al., 2018). Weick (1988) also highlights how different frames, narratives, and categories can emerge as a coping strategy in response to a crisis.

Organizations employ various coping strategies to recover from failure, improve processes and capabilities, and innovate. These strategies often lead to the development of specific responses to crises and the formation of failure mitigation strategies (Antony et al., 2021; Linnenluecke, 2017). When faced with potentially catastrophic breakdowns, firms often need to transform existing capabilities or develop new ones (Autio et al., 2000). This is where managerial cognitions come into play, justifying new decision-making paths and leading to the formation of new capabilities (Child, 1972; Eggers and Kaplan, 2013; Foss and Mazzelli, 2025; Lamberg and Tikkanen, 2006).

Our data analysis reveals that the selected coping strategy often emerges from the disruption of operational capabilities. Decision-making during a crisis is a social process that requires the collective sharing of sensemaking of failure. Recent research suggests that organizations collectively frame failure and address problems before making any rational decisions (Awati and Nikolova, 2022). For example, in the fourth case, the company designed a specific modular production system to control customized products and prevent waste and refabrication of incorrectly delivered orders.

Through our investigation of several coping practices in response to crises (Massie, 2021), we found that the six companies we studied began with a set of frames and categories, evaluated the financial impacts, and selected what they considered the best option to respond to the failure. This process is exemplified by the CEO in the first case study, who stated:

This statement underscores the importance of collective sensemaking and decision-making in successfully navigating organizational failures.

We have systematically integrated illustrative quotes into the narrative and explicitly linked them to theoretical insights, ensuring coherence and enhancing the connection to the research framework. For example, quotes illustrating collective sensemaking, like: “Everyone else knew about it. We had several meetings that we were just fighting”, were directly associated with the theoretical dimension of shared sensemaking, emphasizing the role of social interactions in framing failure (Weick and Sutcliffe, 2015). Similarly, quotes like “During my MBA, I learned that modulation reduces the production cost” reflect managerial cognition, tying these insights to cognitive schemas that influence strategic decisions (Gavetti, 2005). Also, coping strategies such as “We decided to start the drafting … and pick the best design” were linked to the theoretical concept of adaptive capability development (Teece, 2007). In addition, the emergence of “adaptive coping strategies” as a dimension was refined after observing consistent patterns in both interview and observational data, such as recalibration efforts described in quotes like “We had to think about placing little bottles of water and acid under the bench.” This refinement aligns with an abductive approach to theory building, where empirical data iteratively informs theoretical constructs (Dubois and Gadde, 2002). By embedding these systematic connections, we aimed to strengthen the transparency and robustness of our findings.

Former research distinguishes three generic coping strategies of communication, coordination, and resource mobilization and crisis-specific strategies of planning and multitasking, as well as negotiation and compensation (Iftikhar et al., 2021). The coping strategies from the six case studies have been compared to the study of Iftikhar et al. (2021) in Table 5. The CEO of each company reviewed the Table to check the coping strategies applied by their decision-making groups. Further to Table 5, all firms confirmed that communication, coordination, planning, and multitasking are the basic steps in collectively understanding of the nature of the crisis and developing coping scenarios. Table 5 shows the range of coping strategies selected to recover from failure in comparison to the study of Iftikhar et al. (2021).

The rationale behind the selection of particular coping strategies is rooted in managerial cognition and experience. Managers rely on their cognitive frameworks, shaped by prior experiences and education, to identify strategies that align with organizational priorities and contextual constraints (Gavetti, 2005). For example, one manager’s decision to pursue a cost-reducing modulation strategy was influenced by formal learning during an MBA, while another chose to improve design due to high warehouse expansion costs. These choices reflect adaptive capabilities, as managers balance resource constraints with strategic goals such as cost efficiency and flexibility (Teece, 2007; Tripsas and Gavetti, 2000). This cognitive and experiential lens explains why certain strategies were preferred over others.

Recent studies emphasize the role of collective sensemaking in developing dynamic capabilities (Schäfer et al., 2024; Wang and Chiew, 2010). This process involves creating cognitive representations of problems and potential solutions, which are essential for navigating complex organizational challenges (Kafadar, 2012).

Failures in organizations create opportunities for new sensemaking and collective knowledge building. When faced with such disruptions, organizations engage in innovative knowledge creation, integration, and reconfiguration through collective learning (Marshall and Rollinson, 2004; Verona and Ravasi, 2003). Collective learning in organizations arises from interactions among members and access to external resources such as consulting or expert advice (managerial intervention in our research), which facilitate change and adaptation (Tallott and Hilliard, 2014; Teece, 2016).

Understanding the difference between sensemaking and managerial cognition is crucial for realizing their interplay in capability development. Sensemaking includes the process through which individuals interpret complex situations (Weick, 1995), while managerial cognition refers to the mental models used to process information and decision making (Hodgkinson and Healey, 2011). This interplay is a dynamic mechanism because sensemaking provides the context and narratives that shape managerial cognition. Therefore, decision-making and strategic actions will drive capability development (Tripsas and Gavetti, 2000). Our proposed theoretical foundation enhances our understanding of how managers navigate uncertainty to develop robust capabilities.

Figure 3 demonstrates our revised research framework, illustrating the dimensions of managerial intervention in the capability transformation process. Forming a shared understanding among organizational members can initiate a collaborative process that leads to the redevelopment of existing capabilities. This process is informed by theories of intra-organization evolution (Warglien, 2017), punctuated equilibrium (Gersick, 1991), and cognitive learning (Levine, 1975; Nguyen-Xuan, 2020), which help explain how managerial intervention leads to either the development or transformation of operational capabilities (Warglien, 2017).

The incorporation of coping strategies as a critical dimension emerged from consistent patterns observed across the case studies. For example, one project manager’s statement, “As it is not a complicated procedure, we decided to start the drafting,” highlighted how managers opted for practical, resource-efficient coping strategies when faced with operational limitations. This insight prompted the addition of “adaptive coping strategies” to the framework, emphasizing how organizations modify operations based on resource availability and situational constraints. Also, the framework’s evolution was influenced by feedback from both interviews and observations. When managers faced challenges such as recalibration, one CEO noted, “I had no idea how hard recalibration could be … We could just expand that idea,” revealing how past experiences and cognitive frameworks shaped decision-making. This example helped refine the “managerial cognition” dimension, showing that strategies were not merely reactive but were informed by past experiences and innovative thinking. These empirical instances show how the framework evolved to incorporate a more nuanced understanding of coping strategies, enhancing its validity (Eisenhardt, 1989; Gioia et al., 2013).

Our study centers on the integration of sensemaking and punctuated equilibrium theories to address a significant research gap. Based on the findings, when organizational failures occur, managers engage in sensemaking processes to interpret these failures and guide the organization through the adaptation process (Maitlis and Christianson, 2014; Weick, 1995, 2011, 2012). Failures disrupt existing capabilities, prompting organizations to seek new routines/capabilities (Metcalfe, 1981; Meyer, 1982). Managers' ability to reframe sensemaking processes and develop new frames of understanding is critical for capability development (Drazin et al., 1999; Turner et al., 2023). The findings reveal that successful capability development often involves collective sensemaking and mapping of scenarios, which enable organizations to address failures and innovate (Awati and Nikolova, 2022).

To address the gap in literature regarding the specific mechanisms through which managerial intervention leads to the development of new capabilities, our study emphasizes the critical role of managerial cognition and collective sensemaking during periods of organizational failure. While existing research highlights the importance of dynamic capabilities in organizational change (Teece, 2017), there is insufficient exploration of the direct mechanisms by which managerial intervention facilitates the transformation of capabilities. Our study connects managerial actions, such as framing failure, engaging in sensemaking processes, and deploying strategic coping mechanisms, with the development of new organizational routines and capabilities. These interventions are shaped by managers' cognition and experience, which guide their decision-making during breakdowns, enabling them to identify opportunities for innovation and adaptation. By facilitating collective sensemaking, managers can reframe failures as opportunities for capability development, leading to the creation of new processes, routines, and organizational responses that better align with evolving environments (Vergne and Durand, 2011; Chien and Tsai, 2012). This process of intervening during failure and reframing challenges is a key mechanism through which new capabilities are developed, directly linking to the research question of how managerial intervention influences capability development during periods of failure.

Our findings align with the theoretical framework by illustrating how organizations transition between incremental adaptation and radical change based on managerial sensemaking and environmental pressures. Punctuated equilibrium theory explains the observed shifts, where periods of stability and gradual adaptation are interrupted by significant disruptions that necessitate transformation (Gersick, 1991; Tushman and Romanelli, 1985). In our cases, firms that faced less severe failures engaged in incremental adjustments, refining existing capabilities and processes, while those experiencing major disruptions undertook more radical changes, reshaping their strategic orientations and capability configurations. This distinction is further reinforced by the role of managerial cognition in framing failures; firms with proactive sensemaking tended to interpret breakdowns as opportunities for innovation, leading to transformative capability development (Weick, 1995; Maitlis and Christianson, 2014). By systematically linking these empirical observations to theoretical foundations, we provide a structured understanding of why firms pursue different adaptation pathways in response to failure.

This study extends existing research on organizational breakdowns by emphasizing the role of collective sensemaking in developing new capabilities. Our analysis reveals that coping strategies, driven by collective sensemaking, lead to the development of new routines and capabilities, supporting recent research that organizations effectively framing and addressing failures can achieve improved performance (Awati and Nikolova, 2022). The findings highlight that sensemaking is not merely about interpretation but also about generating innovative responses that foster capability development.

Second, we represent how managerial cognition can be conceptualized as the micro-foundation of dynamic capabilities. Following prior research on the nature of dynamic capabilities (Chien and Tsai, 2012; McKelvie and Davidsson, 2009; Wohlgemuth and Wenzel, 2016), we shed light on knowledge creation, idea generation, and process improvement during capability development. Although earlier research (Zott, 2003) finds some dynamic capabilities to be path-dependent, the role of intentional managerial intervention in capability development is important. Failures persuade managers to explore intuitive solutions and engage in sharing collective sensemaking to develop novel strategies (Vergne and Durand, 2011). Bridging sensemaking of failures with capability development significantly impacts organizational performance, with interviewees in four cases (1, 2, 4, and 5) directly noting a noticeable margin increase in each project.

Our study applies the punctuated equilibrium theory to understand how organizations transition between periods of gradual and radical change. Gersick’s (1991) theory provides a lens through which the disruptions caused by breakdowns act as catalysts for organizational change. The research shows that breakdowns serve as punctuation, disrupting existing routines and triggering periods of rapid change that lead to the development of new capabilities. This application of punctuated equilibrium theory offers a novel perspective on how organizational routines are reconfigured in response to breakdowns.

Finally, according to Nelson and Winter (1982), organizations act as repositories of routines that guide their actions. This research illustrates how coping strategies developed through sensemaking processes lead to the creation of new routines/capabilities. By emphasizing the role of managerial cognition in shaping these routines, the study aligns with Becker et al. (2005) concept of path dependence and demonstrates how organizations can break free from established patterns to develop new capabilities.

Our findings offer practical insights for managers, suggesting that fostering managerial cognition and collective sensemaking can enhance capability development. The research framework provides valuable guidance for developing strategies that promote capability transformation through collective sensemaking.

The study highlights the essential role of sensemaking in fostering organizational resilience. By improving how organizations interpret and respond to breakdowns, managers can promote adaptive learning and innovation. Sensemaking processes allow organizations to view failures as opportunities for growth, developing more robust coping strategies. Managers should foster a culture of open dialogue and collective interpretation, enabling adaptive learning and innovation, as emphasized by Weick’s seminal work on sensemaking (Weick, 1995).

Organizational leaders can use this insight to nurture capabilities such as problem-solving and adaptive learning. Investing in these dynamic capabilities helps organizations remain competitive and agile in rapidly changing environments (Teece, 2016, 2017; Teece et al., 1997)s.

Collective sensemaking also plays a crucial role in fostering change. Managers should promote environments where employees contribute to interpreting and responding to breakdowns, leveraging diverse perspectives to develop innovative solutions. Effective practices include facilitating cross-functional teams and encouraging knowledge sharing (Cabrera et al., 2006).

To capitalize on insights from managing breakdowns, organizations should implement structured learning mechanisms, including capturing and analyzing lessons learned and integrating them into organizational practices. Managers should ensure systems for documenting and disseminating insights are in place to retain and utilize knowledge effectively.

Organizational adaptability, particularly in response to failures, plays a key role in enhancing economic resilience by allowing organizations to remain competitive and recover from disruptions. Research shows that organizations with strong dynamic capabilities can more effectively respond to market volatility, driving long-term economic stability (Teece et al., 2016; Teece, 2016). The ability to quickly adjust and innovate not only strengthens individual organizations but also contributes to broader economic systems by fostering a culture of continual learning and improvement (Eisenhardt and Martin, 2000; Helfat et al., 2007).

While the study primarily focuses on a specific sector, the practical implications extend to other industries, particularly those that face similar challenges related to failure and uncertainty. For instance, companies in dynamic industries, such as technology or healthcare, can apply the adaptive strategies identified in the case studies to respond more effectively to disruptions. Firms across different sectors could benefit from fostering collective learning and integrating external expertise to drive innovation and maintain resilience (Schilke, 2014). Furthermore, by understanding the interplay between managerial cognition and sensemaking, managers can refine their decision-making processes and improve organizational agility. As organizations in various industries navigate similar crises, these insights offer a roadmap for enhancing organizational capability, fostering resilience, and sustaining competitive advantage during turbulent times.

Furthermore, the societal implications of organizational adaptability extend to innovation at the macroeconomic level. As organizations evolve through adaptive strategies, they contribute to societal progress by generating new technologies, business models, and employment opportunities (Foss and Saebi, 2017). Organizations that cultivate a culture of sensemaking and innovation are better positioned to address global challenges, such as environmental sustainability and technological advancements, which are critical for societal well-being (Teece, 2017). The research highlights how organizational responses to failure can act as a catalyst for innovation, leading to the creation of new capabilities that not only benefit organizations but also contribute to broader societal goals (Teece, 2016).

In addition, the concept of collective sensemaking, as explored in this study, supports the development of adaptive learning and innovative ecosystems. Such ecosystems foster collaboration and knowledge sharing, both within and across organizations, and are critical in addressing societal needs (Cabrera et al., 2006). By emphasizing the role of collective interpretation in driving change, organizations contribute to the creation of solutions that have the potential to enhance social and economic resilience at a larger scale (Weick, 1995).

Lastly, managers should align coping strategies and capability development with broader organizational goals, ensuring that responses to breakdowns are consistent with strategic objectives.

The study is limited by its case study design, which, while providing rich, context-specific insights, may not be statistically generalizable (Flyvbjerg, 2011; Yin, 2009). Theoretical sampling was used to develop theory rather than test it, and triangulation and a combination of retrospective and real-time data collection methods were employed to mitigate biases (Brinkmann and Kvale, 2014; Twining et al., 2017). The potential bias due to imperfect recall was addressed by using diverse data sources and multiple case studies (Geurts et al., 2024; Huber and Power, 1985).

Future research should explore the role of power dynamics and politics in sensemaking processes (Brown et al., 2015; Clegg et al., 2017). Examining sense-censoring and sense-hiding behaviors could provide further insights into how power relations affect organizational learning (Vaara and Monin, 2010; Whittle et al., 2016). Additionally, research on knowledge-intensive firms, where technical expertise drives organizational dynamics, could offer valuable perspectives on managing breakdowns and fostering innovation (Teirlinck and Spithoven, 2013). Finally, our study focuses on the immediate responses of organizations to failures, but it does not address the long-term sustainability or evolution of the capabilities developed. Research suggests that the durability and adaptability of capabilities over time depend on organizational learning, the environment, and the continuous alignment with strategic objectives (Winter, 2003; Helfat et al., 2007). Future research could examine how these newly formed capabilities persist, evolve, or fade over time and their long-term impact on organizational resilience (Ambrosini et al., 2009).

This study contributes to the literature on organizational breakdowns by highlighting the role of coping strategies in developing new capabilities. It extends the dynamic capabilities perspective by demonstrating how breakdowns can serve as catalysts for innovation and capability development. The findings underscore the importance of collective sensemaking and managerial cognition in transforming failures into opportunities for growth. By focusing on the development of new capabilities and bridge the gap between theory and practice, this research offers valuable insights for enhancing organizational resilience and adaptability.

1. Would you please focus on major failures in your firm and select one?

2. What is the story behind this failure?

3. What was the source of this failure?

4. Did you need specific resources or skills that you did not have at that time?

5. What did you learn? How did you discuss this failure among the management team?

6. How did you utilize your innovative idea in execution?

1. How did the idea of the new product/service/process come to your mind? Was it a requirement or a complimentary product to your portfolio?

2. How does the new process affect your current practices? Are there new procedures reflecting the new processes?

3. What resources or skills were required that you did not have at that moment?

4. How did you plan to execute your idea?

5. Did you run any risk analysis before execution?

6. Based on your experience in the development of the new capabilities, what are your company’s strengths and weaknesses?

7. Was your original plan changed during group practice? Did you receive any feedback from your team?

8. If you had the chance to go back, what would you do or do not?

Source(s): Authors’ work