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

Abstract

This study explores the determinants of organizational aspirations and articulates that aspirations play dual roles that create important tensions for managers. On one hand, aspirations serve a backward-looking, evaluative role as a benchmark for grading performance. On the other, they serve a forward-looking, allocative role in influencing the allocation of limited resources. Our theory suggests that managers will be more aggressive in setting aspirations when resource competition is fierce, but will set less aggressive targets when the costs of missing performance targets are higher. Across two research settings – management forecasts and changes in R&D spending – we find that factors influencing the intensity of resource competition and the costs of missing performance targets determine the aggressiveness of organizational aspirations. Our results suggest that managers strategically adapt organizational aspirations to balance allocative and evaluative concerns. This study articulates a novel aspect of how aspirations are set that complements existing explanations, as well as linking agency and governance explanations with behavioral theory.