Performance Feedback Theory

Abstract

Performance Feedback Theory (PFT) is a scholarly field that examines how organizations respond to feedback on their performance. Other keywords used by researchers in this area include “adaptive aspirations,” “attainment discrepancy,” “organizational learning from performance feedback,” “performance aspiration,” or a more generic label like a “behavioral theory/approach/perspective.” The origin of PFT can be found in the Carnegie School approach. PFT explicitly and predominantly positions itself as part of the “Behavioral Theory of the Firm” (BTOF). PFT shares many of the same foundational ideas and continues to be influenced by other strands of BTOF scholarship. The main concepts in this theory are performance feedback, aspiration levels, and responses or responsiveness. Aspiration level refers to the minimum level of performance deemed satisfactory by a decision maker, and, thus, it serves as the benchmark against which to evaluate performance. Two types of aspiration levels are common: historical ones, which are based on the organization’s own prior performance, and social ones, which are based on the performance of comparable peer organizations, usually all other firms active in a focal firm’s industry. The comparison of actual performance with aspiration levels constitutes performance feedback. Depending on whether performance feedback is favorable, i.e., exceeds a particular aspiration level being examined, PFT predicts different responses and levels of responsiveness. Commonly, predictions and findings indicate responses that diverge from previous firm actions and greater responsiveness in any area of firm activity where performance is below the aspiration level. Such responses includes a wide range of strategic and operational choices, such as new market entry, investment in fixed assets, research and development (R&D) spending, innovation adoption, and so on. In fact, as PFT continues to develop and gain in popularity, the range of firm and decision maker behaviors linked to performance feedback has greatly increased. While consensus is widespread on the core of the theory, PFT scholarship is still developing. Discussions are ongoing on the extent to which its main predictions apply universally, irrespective of the type of organization examined, the performance measure used, and the type of aspiration level considered. Specifically, research efforts are examining what boundary conditions limit the applicability of PFT’s predictions and which contingencies modify them and, thus, should be included as moderators in PFT models.