How can complacency mold managerial decisions? The role of perceptions in strategic decision-making

Abstract

This paper addresses how managers react to attainment discrepancies in their firms’ performance. Scholars have generally argued that only when performance drops below a predetermined aspiration level firms present a search and change behavior in order to fix this dropping performance. In particular, prior research assumes that organizations compare their performance against preset aspiration levels proceeding from their peers’ performance or their own performance in prior years when determining the urgency of engaging in organizational change. However, empirical evidence on this issue is ambiguous and inconclusive. We tackle this puzzle by studying the executives’ complacency (or cognitive interpretations) with objective results of the firm to determine when the company will decide to change and the magnitude of those changes. Using a sample of 137 medium-sized firms, we do find that the combination of objective results with the managerial perception of them, allows us to obtain a better understanding of the performance feedback literature. Thus, organizational change will be (only) enhanced in front of low managerial levels of complacency with organizational results, disregarding the sign of the objective performance feedback obtained by the firm. Moreover, in our research, we go one step further in analyzing several executives’ characteristics that may affect this managerial complacency.