Performance, Aspirations, and Risky Organizational Change

I am grateful to James G. March for the conversations that started this research, to Willie Ocasio, Anjali Sastry, Christine Oliver, three anonymous reviewers for ASQ, and seminar participants at Kobe University and Keio Business School for helpful comments on the paper, and to Linda Johanson for editorial guidance. Research support from Stanford Center for Organizations Research, the Richard D. Irwin Foundation, and the Spencer Foundation is gratefully acknowledged. An earlier version of this paper appeared in the 1996 Academy of Management Best Papers Proceedings. The study reported here uses learning theory to examine how performance feedback affects the probability of risky organizational changes that are consequential to an organization's performance. The theory predicts how decision makers interpret organizational performance by comparing it with historical and social aspiration levels. Empirical analysis of the consequences of performance shortfalls on the probability of strategic change in the radio broadcasting industry shows clear sensitivity to social and historical aspiration levels. It also shows that changes seen or done by the station predict future change, suggesting that the recent experiences of organizations cause differences in capabilities and perceived opportunities, leading to differences in organizational inertia.'