Performance, aspirations, and risky organizational change

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.