Characterizing the capability frontier: Key attributes determining the development of capabilities

Abstract System Dynamics research on capability traps, where organizations remain in low capability and performance equilibrium because of poor resource allocation, spans over two decades and various industries, including agriculture, industry, and humanitarian aid. However, there is a gap in understanding how specific capability attributes affect resource allocation decisions. This study advances the capability trap literature by developing a theoretical model analyzing how key capability attributes—development time, erosion time, and productivity—impact organizational performance and managers' decisions. We introduce the concept of a “capability region”, an attractive area for capability investments, delineated by a “capability frontier” determined by threshold values of these three attributes. This model helps managers understand the factors driving capability development and supports better decision‐making, especially in sustainable practices. By identifying where sustainability‐related capability investments are likely to succeed, this research offers practical guidance for organizations to escape or avoid capability traps, promoting sustainable growth and adaptation.