Knowing Your Place: Social Performance Feedback in Good Times and Bad Times

Abstract

Performance comparisons—specifically, performance relative to aspirations—are central to the behavioral theory of the firm. Firms evaluate their performance in relation to their own prior performance (“historical comparison”) and the performance of other organizations (“social comparison”) and base subsequent organizational change on this performance feedback. Of the two, social performance comparison has received relatively little theoretical or empirical development. This paper seeks to fill that gap by extending the theoretical conceptualization and empirical specification of the socially derived performance targets against which organizations compare their performance. Drawing on insights from the social psychology literature, we argue first that organizational decision makers monitor two socially derived performance benchmarks: an upwardly focused “top performance threshold” marking the highest levels of performance in the reference group and a downwardly anchored “reference group threshold” marking the performance level below which organizations can not consider themselves members of the reference group. Building on these arguments, we also motivate a new, and more complete, way to conceptualize performance comparison. Integrating socially and historically derived sources of performance feedback, we propose the historically based social aspiration threshold (HiBSAT) as an additional aspiration point representing the socially derived performance threshold closest to the organization’s prior performance. In an empirical analysis of German soccer league (Bundesliga) clubs between 1992 and 2004, we find that organizations have both upward and downward socially derived performance targets and that performance relative to the HiBSAT is particularly salient in motivating organizational change.