Setting the Bar: The Evaluative and Allocative Roles of Organizational Aspirations

Abstract

This study explores the determinants of organizational aspirations, proposing that aspirations play dual roles that create important tension for managers. On one hand, aspirations serve an evaluative role as a benchmark for assessing performance. On the other, they have an allocative role in influencing the acquisition of limited resources. Our theory suggests that managers strategically adapt organizational aspirations to balance the tension between the two concerns. They set more aggressive aspirations when facing increased pressure to acquire resources, but set more conservative targets when the costs of missing performance targets are higher. In the context of annual management forecasts, which allow us to directly observe performance targets and their deviation from traditional aspiration measures, we find that external factors influencing the intensity of resource pressure and the cost of missing performance targets determine the aggressiveness of organizational aspirations. This study highlights a novel antecedent of aspirations that complements existing explanations, linking agency and governance research with behavioral theory.