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London Business School

Regent’s Park

London NW1 4SA

United Kingdom



Anderson School of Management

University of California, Los Angeles

110 Westwood Plaza, Suite B420

Los Angeles, CA 90095-1481 osorenso@anderson.ucla.edu APRIL 2001 * We thank seminar participants at Insead, Stanford and UC Berkeley for useful suggestions.

Special thanks go to Lee Fleming for generously providing us with the patent data and with comments on an earlier version of the paper. We acknowledge financial support from London Business School and the University of California.



ABSTRACT Both structural and psychological accounts can explain change in organizational behavior. We test critically for the relevance of psychological processes by examining the relationship between organizational performance and behavioral change across multiple levels inside the firm. While previous work often assumes that firm success leads to a generalized rigidity throughout the organization, we argue that constituencies within the firm differ in the content of their aspirations and these differences cause divergences in their responses to multiple performance dimensions.

Top executives aspire to achieve organizational goals and are more prone to exhibit behavioral inertia in the face of firm success. In contrast, influential organizational members located lower in the hierarchy form aspirations linked to subunit activities and their behavioral rigidity is more likely to stem from subunit performance than from firm performance. We find support for these arguments in the computer workstations industry by focusing the analysis on changes in product portfolios and patent portfolios, two activities that come under the purview of two distinct groups within the organization, executives and technologists.



A well-established line of organizational theory argues that individual level psychological processes can generate inertia in successful organizations (Cyert and March, 1963; Levinthal and March, 1981; March and Simon, 1958). These accounts hold that the gap between aspirations and performance influences whether decision-makers decide to persist with the current strategy or to change it (Audia, Locke, and Smith, 2000; Greve, 1998; Lant, Milliken, and Batra, 1992;

Miller and Chen, 1994; Singh, 1986). A positive gap, indicating success, engenders satisfaction with the status quo and a reduction in efforts toward strategic change. In contrast, the failure to meet expectations associated with a negative gap produces dissatisfaction and motivates the search for new, potentially more effective, strategies.

By highlighting individual level factors that can generate rigidity, these psychological perspectives complement structural accounts of organizational inertia (Hannan and Freeman, 1984). Nevertheless, they offer an oversimplified and, perhaps, unrealistic explanation of how inertial processes unfold inside organizations. Psychological accounts typically treat organizations as aggregates of individuals with homogeneous aspirations who respond as one to organizational performance. This assumption paints a picture of organizational rigidity as a uniform state that permeates the entire firm. In reality, organizational action more likely reflects the initiatives of multiple constituencies with varying ambitions and diverse foci of attention (Burgelman, 1983, 1994; Cyert and March, 1963; March, 1994). If psychological processes drive rigidity, these differences imply that influential groups within the organization may vary in which signals they interpret as indicative of success, suggesting that behavioral inertia may differ from one subunit to the next within an organization.

This study focuses on the role that aspirations play in the relationship between performance and change; however, unlike most previous empirical work, it treats organizations as collections of groups of individuals that influence organizational action. Specifically, it examines the response of different constituencies within the organization to firm performance, thereby developing a critical test of two contrasting perspectives on the relationship between organizational success and behavior. In the first scenario, firm success creates a generalized rigidity throughout the organization. Both executives and other influential groups of individuals lower in the hierarchy exhibit behavioral inertia. Several processes including the cementation of cause-and-effect beliefs (Prahalad and Bettis, 1986) and structural pressures (Hannan and Freeman, 1984) could account for this general ossification. Under the second scenario, consistent with the view that aspirations vary across constituencies within the firm and direct attention toward different performance dimensions, organizational performance differentially affects groups within the organization, thus mitigating the inertial effect of firm success.

To test these ideas, we analyze manufacturers of computer workstations, a hightechnology industry characterized by small and continuous shifts in the competitive environment.

This setting allows us to examine two strategic activities that critically influence the competitiveness of these organizations: changes in product portfolios and changes in technology – in this case patent portfolios. Product and patent portfolios arise largely from the actions of two distinct groups of individuals within the organization. Whereas executives play a dominant role in the decision to launch or withdraw a product (e.g., Dougherty and Hardy, 1996; Wheelwright and Clark, 1995), organizational members closer to the research and development process – scientists and engineers – wield more influence in the efforts that generate new patents (e.g., Roberts, 1988; Nelson, 1962). Do these constituencies react in unison or independently in response to evidence of organizational success? To anticipate our conclusion, the findings presented here – consistent with the expectations of aspiration theory – suggest that organizational rigidity varies across constituencies within the firm. Strong sales growth relative to aspiration levels increases inertia in product related decisions but does not affect patenting activity. Meanwhile, engineers and scientists exhibit rigidity in their inventive activities when technological performance improves in relation to aspiration levels.


The Role of Executives and Technologists in Strategic Activities Managerial theorists often view executives at the top of the hierarchy as the primary source of a firm’s official strategy (e.g., Andrews, 1980). Based on their understanding of the organization’s current position and future opportunities, executives create policies that channel efforts and guide strategic decisions within the organization. Nevertheless, their activities alone do not determine strategic direction. Research into the strategy process reveals that strategic initiatives can originate from actions taken by actors below the apex of the organizational hierarchy (Burgelman, 1983, 1994). Organizational departments frequently receive license to act independently by virtue of their ability to deal with critical sources of uncertainty, such as new technological developments or changes in market conditions (Pfeffer and Salancik, 1977). Their autonomous actions generate opportunities that can point the organization in new strategic directions.

Which departments receive such strategic freedom depends on where the major sources of uncertainty in the organization lie, since uncertainty confers power to those organizational members who can control it (Lawrence and Lorsch, 1967). In high-technology organizations, the focus of our empirical investigation, scientists and engineers – a group we will refer to as technologists – fall into this group of influential actors because they play a critical role in the innovation process. Technologists generate ideas and advance technical solutions that enable the introduction of novel products, the enhancement of existing products and the development of more efficient manufacturing processes. We now turn our attention to an examination of the effect of organizational performance on technologists and executives.

The effect of organizational performance on technologists and executives Aspiration level theory, an important component of the behavioral theory of the firm (Cyert and March, 1963), holds that the level of performance one hopes to achieve, known as the aspiration level, regulates the behavior of the decision maker. Individuals classify the outcomes toward which they orient their behavior as successes or failures. The aspiration level denotes the point that divides outcomes into these two categories. This interpretation of environmental feedback leads to behavioral consequences. Successes generate satisfaction and consequently decrease the search for new solutions. Conversely, failures yield dissatisfaction and encourage individuals to seek out new ways of doing things.

Researchers use this psychological theory to propose relationships between firm performance and firm behavior, in particular organizational change (e.g., Bromiley, 1991; Greve, 1998; Levinthal and March, 1981; Miller and Chen, 1994). To move from individual level theory to organizational implications, most researchers assume employee homogeneity – that all organizational members hold the same aspiration level. Some studies apply this assumption implicitly to all of the individuals in the organization (Bromiley, 1991; Greve, 1998; Singh, 1986). Others apply it only to the top executives because they conceive organizational action as originating primarily from the decisions of the upper echelon (Audia et al., 2000; Lant et al., 1992; Miller and Chen, 1994). The advantage of the homogeneity assumption lies in its parsimonious solution to how individual efforts aggregate to form organizational action, a recurring issue in micro-macro research (DiPrete and Forristal, 1994). Nevertheless, this assumption also creates a potentially unrealistic monolithic view of the organization, whereby firm performance above the aspiration level has pervasive and unvaried inertial effects throughout the firm. Whether this image of organizational rigidity as a uniform state matches reality or misleads depends on the validity of the homogeneity assumption. Do influential organizational members react in unison to firm performance, or do they differ in ways that cause divergences in their response to firm performance?

To address this question we return to aspiration level theory. Cyert and March’s original formulation offers two critical insights that yield important implications for how specific groups of individuals within the firm may react to organizational performance. First, although aspiration level theory focuses primarily on the level of aspirations, as its name suggests, it also considers aspiration content, what people see as important, as another critical dimension of organizational goals (Cyert and March, 1963: p. 162). Aspiration content acts as an attention filter, directing attention toward cues relevant to performance evaluation, and sets, together with the aspiration level, the evaluative standard that activates perceptions of success and failure (Locke and Latham, 1990). For example, if individuals frame their aspirations in terms of firm growth, they will attend more to information relevant to that performance dimension, will weight that information more heavily in evaluating their performance, and will react behaviorally and emotionally to their assessments. On the other hand, if firm growth does not constitute a chief concern, then it will play a limited role, with either a weak impact or no impact on their behavior.

Therefore, aspiration content critically affects organizational members’ responses to firm performance. A uniform response will only arise if all individuals have the same goals.

The second insight suggests that individuals within a firm will diverge in the content of their aspirations because the process of differentiation among sub-units critically shapes the foci of attention (Cyert and March, 1963; March, 1994). Organizations group activities to reduce the variety of the problems people face. This division of labor increases efficiency but also leads to unintended psychological consequences. Organizational subunits define natural social boundaries within which people form important connections with other individuals that share access to a codified body of knowledge, common interpretations of life and purpose, and mutual interests. In some cases, these groups transcend organizational boundaries and include peers that belong to the same professional community (Abbott, 1988). Since people often draw their identities from social group memberships (Turner, 1987), belonging to a subunit triggers a distinct social identity that directs attention back toward the group. This fits with research which consistently finds that group members gain satisfaction from the success of their group, favor the position of the group with which they identify, and generate arguments supporting their group much more easily than those opposing it (for a review, see Elsbach, 1999). The influence of social identity on individuals’ cognitive and motivational processes also explains Cyert and March’s argument (1963: 48-49) that in-group orientation shapes the aspiration content of subunit members. They note, for example, that production goals appear most central in the manufacturing side of the organization whereas sales goals seem most salient in decisions made by the sales department.

The salience of sub-unit goals then determines what stimuli individuals pay the most attention to and what schemas they use to interpret this information.

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