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58 Organizational Learning from Performance Feedback organizationalunittheyhead.Intra-organizationalpoliticsresultinaneed to make changes acceptable to a broad coalition of managers. Otherwise, dissenting managers can resist in the decision-making process and stall the implementation process. Inter-organizational constraints result from the need to maintain stable exchanges with the environment. The orga-nization has access to necessary resources as long as its managers can structure exchanges that also fulfill the needs of its current exchange partners (Pfeffer and Salancik 1978). This dependence on other actors makes changes intended to reorganize current exchanges less likely, since current exchange partners have a voice in the decision-making process through the organizational members who manage the exchange, while al-ternativeexchangepartnersarelikelytolacksuchrepresentationandthus are a weaker voice in the decision-making process than their economic potential warrants (Christensen and Bower 1996). These sources of inertia create constraints that decouple financial and organizational risk. While managers are quite capable of taking finan-cial risks, and may become risk seeking when the performance is below the aspiration level, they are less capable of taking organizationally risky actions. Many changes that are large financially are also large organiza-tionally, such as changing the product or market strategy, so for such changes the distinction is not important. Other changes have unequal or-ganizational and financial risks. Managers are likely to favor changes that are large financially but not organizationally. Changing the organization by budding or grafting new elements onto the existing structure have this characteristic, making new product development (without dropping ex-isting products), acquisition of other organizations (leaving the current intact) or divestment of weak organizational units (leaving the rest in-tact) very attractive solutions for managers who seek financial risk but not organizational risk. These are financially risky but organizationally piecemeal approaches to change. Organizational change The effects of performance feedback on organizational search and man-agerial risk preferences combine to yield the effect on the rate of making organizational change. To see how this happens, consider the following propositions derived from the discussion above: P1 Slack search and institutionalized search are not responsive to perfor-mance feedback. P2 Problemistic search is increased when the organization performs be-lowtheaspirationlevelanddecreasedwhentheorganizationperforms above the aspiration level. Model 59 P3 Managerial preference for financially risky actions is increased when the organization performs below the aspiration level and decreased when the organization performs below the aspiration level. P4 Inertial factors reduce the rate of adopting organizationally risky ac-tions regardless of the organizational performance. To integrate these suggestions, we may consider the organizational decision-makingprocessasaflowofsolutionsresultingfromsearch.This searchhasonecomponentthatisregulatedbyperformance,problemistic search, and two that are not, slack and institutional search. The solutions areriskyalternativestothecurrentbehaviors,andareacceptedorrejected depending on whether they can be attached to a problem and whether their organizational and financial risks are acceptable to the managers. Thus we have a flow of solutions which is partially regulated by per-formance feedback and which passes a decision-making filter regulated by performance feedback. Figure 3.1 shows the relation (compare with figure 2.1). How performance turns into organizational change thus depends on what kind of organizational change we consider. In general, we should expect change to be less likely to occur when the organization performs above the aspiration level, since problemistic search is at a low level, few problems are available to attach a solution to, and managers are risk averse. We should not expect changes to completely vanish, however. Slack and institutionalized search will continue to feed solutions into the decision-making process, and some of these may have risk levels that are acceptable to the decision makers. For financially risky actions with low organizational risk, we should expect a much greater rate of change when the organizational perfor-manceisbelowtheaspirationlevelsinceproblemisticsearchisconducted and risky actions are acceptable. For actions that are organizationally as well as financially risky, we should expect the rate of change to in-crease less sharply since it is counteracted by organizational inertia, but it should still increase through the effect of the search and decision-making processes. Figure 3.2 illustrates some ways to integrate the effects of the risk and decision-making processes on organizational change. Figure 3.2(a) shows a very simple model that assumes that decision makers classify outcomes into two categories, success and failure, and that the probabil-ity of change is higher in the failure category (March and Simon 1958). This figure is consistent with the arguments above, but may be too sim-ple since it treats a small performance shortfall as equivalent to a large one. Figures 3.2(b) through 3.2(d) show models with continuous adjust-ments of the probability of change. In figure 3.2(b) the probability of 60 Organizational Learning from Performance Feedback Observe feedback from environment Evaluation Yes No Is the goal fulfilled? No Increase problemistic search Search Slack search Deliver problem to decision making Deliver solutions for decision making Institutionalized search Decision Decrease risk tolerance Decide based on risk tolerance, solutions, and problems Increase risk tolerance Figure 3.1 Performance-based adjustment of search and decision making change decreases as the performance increases, but the probability de-creases faster above the aspiration level than below the aspiration level. This figure is completely consistent with the arguments above. It incor-porates the adjustment of search and risk preference in the downward slopes of the curves, and the resistance to major organizational changes in the flatter curve below the aspiration level than above it. Like figure 3.2(a), it incorporates the possibility that changes may occur even at high levels of performance, which is consistent with continuing slack and in-stitutionalized search even when the performance is high. Model Performance -- Aspiration 61 Performance -- Aspiration (a) Categorical response Performance -- Aspiration (c) Constant-slope response (b) Changing-slope response Performance -- Aspiration (d) Non-homogenous response Figure 3.2 Possible reactions to performance feedback Source: Greve (1998b). Copyright ÿ 1998 Cornell University. In figure 3.2(c) these inertial factors are absent, leading to a constant decreaseintheprobabilityofchangeovertheentirerangeofperformance. Figure 3.2(c) shows no effect of aspiration levels, since there is no dis-continuity or change in slope anywhere in the curve. Such a slope might be proposed for changes with no organizational risk, only financial risk, because such changes do not face the managerial resistance that causes inertia. Finally, in figure 3.2(d) change is most likely near the aspiration level and declines away from it. Such a relation is not consistent with the above arguments, but might happen as a result of another process. If low per-formance is interpreted as a threat to an organization, then threat rigidity can cause decision makers to reduce the level of organizational change (StawandRoss1987;Staw,Sandelands,andDutton1981).Threatrigid-ity is different from regular performance feedback because it happens as a result of the decision maker changing the focus from the hoped-for aspiration level to the feared failure level of performance (Lopes 1987; March and Shapira 1992). Such a change in focus is most likely when the 62 Organizational Learning from Performance Feedback performance is very low, and an experiment has indeed shown that threat rigidity occurred for very low levels of performance while problemistic searchoccurredforperformancejustbelowtheaspirationlevel(Lantand Hurley 1999). The curve in figure 3.2(b) thus is most consistent with the theory of performance feedback interpreted by aspiration levels. This curve is characterized by two properties: (1) decline in the probability of change when the performance increases, both above and below the aspiration level; and (2) higher sensitivity above the aspiration level, as the decline in probability of change is more rapid then. The second property gives the curve a kink – a change in the slope – at the aspiration level. Finding this kinked-curve relation in empirical data is a strong confirmation of the theory because it shows that the aspiration level changes the behavior by modifying the relation from performance to organizational change.4 In empirical studies, the kinked-curve relation can be tested against a variety of alternative relations. The most fundamental test is against the traditional null hypothesis of no effect, that is, a horizontal relation from performance to change. This is tested by examining whether the estimated slopes above and below the aspiration level are below zero. It is possible for inertial forces to be so strong that the relation is horizontal below the aspiration level; in such cases the organization does not react differently to different levels of losses. A second important test is whether the curve really has a kink, that is, whether it declines more rapidly above the aspiration level than below it. This is tested by examining whether the estimated slopes above and below the aspiration level are significantly different from each other. It is possible for the response curve to decline at the same rate above and below the aspiration level, and in such cases it would be hard to argue that the aspiration level is behaviorally important. Figure 3.3 shows one way to interpret the slopes in figure 3.2(b). In this figure, the hypothesized relation is shown by a solid line, and dotted reference lines are drawn to illustrate how the causal factors influence the response to performance feedback. As before, the horizontal axis is the performance with the aspiration level set to the origin, and the vertical axis is the probability or extent of organizational change. The horizontal 4 I have tried to discuss the curves without using mathematical jargon, but should clarify three terms. Figures 3.2(b)–3.2(d) are continuous, which simply means that all points are connected. Put more formally, at all points the limit of the function taken from the right is the same as the limit taken to the left. Figure 3.2(a) “jumps”, so it is not continuous. Figures 3.2(b) and 3.2(d) are kinked, which means that the slope changes at the aspiration level. Put more formally, they are non-differentiable at the aspiration level, which means that the right derivative and left derivative are different. Figure 3.2(d) is also non-homogeneous (it goes up and down). I’ll refrain from giving the formal definition of homogeneity since it is likely to be confusing. ... - tailieumienphi.vn
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