Electronic Thesis and Dissertation Repository

Thesis Format

Integrated Article

Degree

Doctor of Philosophy

Program

Business

Supervisor

Rowe, W. Glenn

Abstract

This dissertation offers new insights on organizational decision making with respect to performance relative to aspirations and the role of external coalition members and reciprocal internal organizational responses. In doing so, it contributes to the behavioral theory of the firm literature. While most behavioral theory of the firm studies focus mainly on the outcomes of performance relative to aspirations and have taken aspirations for granted, this dissertation elaborates on the existing literature to identify the gaps in our understanding of organizational aspirations and makes suggestions on how to extend the theory of organizational aspirations. I further focus on external coalition members that exist beyond formal organizational boundaries of the firm and study their systematic reactions to performance relative to aspirations and how those reactions are looped back into organizational responses to performance discrepancies.

Essay 1 reviews the literature on aspirations from the behavioral theory of the firm perspective. By discussing origins, definitions, loci, dimensionality and adaptation of aspirations as well as organizational attention to aspirations and outcomes, I propose revisions to the existing understanding of aspirations. In particular, an inverted model of aspirations that abandons the assumption of psychological neutrality of aspirations as well as stability and progress aspirations on single performance measure would allow for explaining the decisions of emerging organizations and co-existence of multiple organizational aspirations.

Essay 2 combines behavioral theory of the firm with Hirschman’s exit and voice concepts and develops a theoretical model that explains how external coalition members, namely shareholders, are looped into the performance feedback mechanism that links organizational responses to performance relative to aspirations. I pose that voice and exit are two alternatives that individual shareholders can pursue in response to performance discrepancies, both below and above aspirations, and that collective shareholder voice motivates the firm to adapt to such performance discrepancies. The essay further empirically tests the proposed conceptual model using a set of panel data methods.

Essay 3 further elaborates on the idea of external roots in performance feedback by looking at the organizational slack as the barrier between external and internal coalition members. Unlike the earlier literature which associated slack with organizational innovativeness, this paper demonstrates that slack is a political instrument that enhances the position of internal coalition members and mutes the voice of external coalition members, hence, hindering organizational reaction to performance below aspirations. This paper further argues that high slack amplifies the negative effect of self-enhancement on problemistic search.

Summary for Lay Audience

It is a common sense notion that businesses should strive to increase their performance. An aspect of organizational performance that is often overlooked is that absolute performance rarely matters, it is relative performance, a comparison of actual performance to certain benchmarks, or aspiration levels, that is important for decision making. Interestingly, however, not only is pursuit of performance important for organizations, but also the outcome, that is, the difference between performance and aspiration levels, can be a strong predictor of future organizational actions.

This thesis is concerned with two things: how organizations form aspiration levels that facilitate evaluation of performance outcomes of the firms, and how actors external to the firm are looped into the link between the relative performance and organizational responses.

By reviewing the existing literature on aspirations, I emphasise the fuzziness of organizational aspirations as each point of comparison makes a separate aspiration. Moreover, I pose that firms may have multiple aspirations even for a single performance measure, each such aspiration representing different values and frames, such as organizational stability or organizational progress. This significantly contrasts with the extant focus on past performance and performance of peer firms as sources of aspirations.

I also highlight the role of coalitions of decision makers who reconcile their own aspirations into organizational level aspiration. This suggests that external coalition members also take part in the creation of aspirations and in the way organizations respond to the relative performance outcomes. I find significant support for the hypotheses that shareholders, as external coalition members, systematically raise their voice when firm performance deviates from the aspired level and that such shareholder voice triggers organizational search. However, firms with a high level of slack are reluctant to listen to benevolent external voice and are mostly concerned about the interests of the incumbent managers, even when these managers engage in self-enhancement and misrepresent the actual performance of the firm for their personal benefit.

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