We theorized that organization–environment adaptation, the interaction between external demands and personnel resources, predicts distress and morale. We tested this hypothesis in 29 stations within one state police department, and combined three data sources. We measured environmental demands for policing via census data pertaining to the station precinct (e.g., per cent unemployed; per cent in public housing). We assessed resources via personnel numbers within stations. Outcomes were employee's perceptions of staff distress and morale at the station (N = 247), assessed twice, 14 months apart. Using hierarchical linear modeling, we found that environmental demands predicted perceptions of workgroup distress and morale and that the relationships were moderated by personnel resources. For distress, when resources were low, demands were positively associated with distress; when resources were high, demands were negatively associated with distress. For morale, when resources were high, demands were positively associated with morale; there was no relationship when resources were low. Results show that aversive and pleasurable reactions at work may be traced to how resources are employed to manage external demands. Results support a macro-level shift in modeling distress and morale, incorporating external demands, and strategic management decisions regarding personnel resourcing. Our research suggests that rather than being a result of individual failure to adapt, compromised work ability may result from an organizational failure to adapt to the environmental context. Copyright © 2012 John Wiley & Sons, Ltd.