Prior literature suggests two competing mechanisms for how organizations respond to environmental forces – absorption and reduction – but there is no consensus on which mechanism is more effective. We solve this puzzle by analysing one underlying dimension of these two mechanisms – organizational ambivalence – in a small and medium size enterprise context. Specifically, we believe that because of the difference in consuming resources, organizational ambivalence can be divided into latent and active, which exhibit different uses in dealing with environmental forces and improving firm performance. We conducted two studies in four countries to test our hypotheses. These two studies yield unanimous support for our hypotheses regarding the impact of organizational ambivalence on organizational performance and mixed support for our hypotheses concerning environmental impacts on organizational ambivalence.
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