Performance Feedback Theory

by

Gerardus J. M. Lucas

• LAST REVIEWED: 22 September 2021
• LAST MODIFIED: 22 September 2021
• DOI: 10.1093/obo/9780199846740-0207

Introduction

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.

General Overviews

There are no textbooks or reference works specifically devoted to Performance Feedback Theory (PFT). Textbooks devoted to a broader area in management, such as organization theory or strategy, may include an overview of the Behavioral Theory of the Firm (BTOF). See the separate Oxford Bibliographies in Management article “Behavioral Theory of the Firm,” which provides an elementary discussion of some of the terminology PFT shares with these more general fields. The reader interested in a more focused discussion of PFT would need to look to monographs and review articles instead. An early exposition of PFT as a distinct theory and elaboration of BTOF is found in Greve 2003a, which is somewhat dated given the considerable progression of PFT scholarship since its publication. Since 2003, a number of review articles summarizing advancements in PFT and empirical studies testing PFT predictions have been published. Greve 2010 gives an exposition of PFT aimed at a practitioner audience. Shinkle 2012 surveys extant PFT scholarship and compares this with wider research on organizational aspirations. Posen, et al. 2018 provides a survey of the PFT literature as part of a more critical reflection on PFT scholarship and how research should continue to develop. The authors of these works propose subsuming much of PFT scholarship under the notion of problemistic search, which differentiates them from other scholars in the field for whom problemistic search is an outcome of performance feedback and/or mechanisms linking responsiveness to performance feedback (see Search and the works cited there). The latest general overviews of the literature can be found in Greve and Gaba 2020 and Audia and Greve 2021. Recently, a new approach has been introduced to the PFT literature in Kotiloglu, et al. 2021 and Verver, et al. 2018. The authors of these works use meta-analysis to summarize the evidence for the main PFT predictions. Such meta-analyses provide insight into the strength of support for these predictions as well as what boundary conditions and moderators result in deviations from the standard PFT model. In combination, these review articles and meta-analyses provide a good sense of the state of art in Performance Feedback Theory scholarship as well as fruitful directions for future research.

• Audia, Pino G., and Henrich R Greve. Organizational Learning from Performance Feedback: A Behavioral Perspective on Multiple Goals. Elements in Organization Theory. Cambridge, UK: Cambridge University Press, 2021.

  In this short monograph, the authors summarize the original model of Performance Feedback Theory as formulated in Cyert and March 1963 (cited under Theoretical Foundations). They then discuss the extensions that have been made to this model in the decades that followed. These two topics span the first couple of chapters, with the remainder spent on multiple goals (see Inconsistent Performance Feedback and Multiple Goals). Available by subscription.

• Greve, Henrich R. Organizational Learning from Performance Feedback: A Behavioral Perspective on Innovation and Change. Cambridge, UK: Cambridge University Press, 2003a.

  DOI: 10.1017/CBO9780511615139

  The core of this monograph provides an exposition of key concepts, models, and assumptions in PFT. This is preceded by a discussion of the foundational insights from the wider BTOF area, social psychology, and economics that were incorporated into PFT. In addition, a number of applications of the theory as well as an exposition of methodological and analytical procedures that PFT researchers employ are presented.

• Greve, Henrich R. “Designing Performance Feedback Systems to Guide Learning and Manage Risk.” Organizational Dynamics 39.2 (2010): 104–114.

  DOI: 10.1016/j.orgdyn.2010.01.004

  This paper describes PFT in an accessible way along with a number of practical implications. This makes it suitable as a source both for a lay audience and for classroom use.

• Greve, Henrich R., and Vibha Gaba. “Performance Feedback in Organizations and Groups: Common Themes.” In The Oxford Handbook of Group and Organizational Learning. Edited by Linda Argote and John M. Levine. New York: Oxford University Press, 2020.

  The authors review the PFT literature and compare it with the literature on individual-level goal setting (see Locke and Latham 1990 [cited under Psychology and Individual-Level Theories of Decision Making]). A research agenda for performance feedback at the group level is proposed following this comparison. Available by subscription.

• Kotiloglu, Serhan, Yan Chen, and Thomas Lechler. “Organizational Responses to Performance Feedback: A Meta-analytic Review.” Strategic Organization 19.2 (2021): 285–311.

  DOI: 10.1177/1476127019883361

  This meta-analysis summarizes findings from a systematically selected sample of 113 PFT studies. It examined responsiveness to performance feedback and whether PFT’s main prediction that organizations are more responsive to performance below than above the aspiration level is upheld across the prior empirical work. Furthermore, whether findings from prior work are sensitive to the type of response studied or certain firm and sample characteristics is examined as well.

• Posen, Hart, Thomas Keil, Sangyun Kim, and Felix Meissner. “Renewing Research on Problemistic Search: A Review and Research Agenda.” Academy of Management Annals 12.1 (2018): 208–251.

  DOI: 10.5465/annals.2016.0018

  This review articles positions PFT as a theory about problemistic search. It advances the criticism that PFT scholarship tends to position itself using the original formulation of this concept (see Cyert and March 1963 [cited under Theoretical Foundations]) and neglects to incorporate more recent insights and evidence. Besides providing a systematic overview of PFT work, the review offers a research agenda that puts cognition and a process perspective at its center.

• Shinkle, George A. “Organizational Aspirations, Reference Points, and Goals: Building on the Past and Aiming for the Future.” Journal of Management 38.1 (2012): 415–455.

  DOI: 10.1177/0149206311419856

  This review article discusses PFT scholarship on aspirations. It aims to synthesize this with insights from two other, less commonly employed, perspectives on organizational aspirations: Ansoff’s strategic management view and strategic reference point theory. As the latter two perspectives are sometimes employed in addition to more common PFT theorizing in PFT work, this review furthers understanding of possible variations on standard PFT treatments.

• Verver, Hugo, Marino van Zelst, Gerardus J. M. Lucas, and Marius T. H. Meeus. “Understanding Heterogeneity in the Performance Feedback: Organizational Responsiveness Relationship: A Meta-Analysis.” Academy of Management Proceedings 2018.1 (2018s).

  DOI: 10.5465/AMBPP.2018.16371abstract

  This meta-analysis summarizes findings from a systematically selected sample of 156 PFT studies. It examines a number of refined predictions beyond the standard PFT prediction of greater responsiveness below than above the aspiration level. This involved differentiating between historical and social aspiration levels, aspiration levels based on financial and nonfinancial measures, as well as the sort of response examined and a number of firm and industry characteristics.