By Liz Warren-Pederson
The proposal, for a working paper, looks at how firms shift their attention and adapt their goals or aspirations. “We think it’s an important topic because firms’ feedback on their goals will affect their risk taking and performance,” she said. “There are different reference points firms attend to in adapting their aspirations, such as past performance and peer performance. The existing literature has generally assumed the homogeneity of attention allocated to different reference points across firms and across time within individual firms.” In contrast, her paper examines the heterogeneity of attention allocation and the underlying mechanisms that cause attention shift.
The paper is part of Hu’s larger body of work, which focuses on the logical processes of organizational decision making, and how the resulting decisions can lead to competitive advantage over time. For example, she said, “Organizations have different goals, which can potentially be in conflict with each other. So decision making is a dynamic process in which organizations must make tradeoffs between those goals.”
For the paper in progress, Hu and her coauthors used data from the German magazine industry. “It’s difficult to get data on organizations’ goals and aspirations, because that data is sensitive,” she said. “Publishing companies have specific numbers of magazines that they want to print, and the number of copies they print represent their aspirations.”
Hu and her coauthors describe several dynamics at work. “Magazines benchmark against their peers, their past performance, and the performance of their sister magazines to determine their future aspirations,” she said. “What we find is a shift in attention over time.”
For instance, a magazine’s strong reputation and popularity may negatively affect performance over time: “Such organizations may benchmark below themselves as a self-enhancement strategy,” she said. “As they grow into large organizations, inertia can set in.”
Hu said that she and her colleagues are still analyzing their data. “We are looking at when organizations should attend to their own experience and when they should learn from the market when it comes to setting their goals,” she said. “We expect these results will have significant implications for managerial goal setting.”
Three arrows hitting the center of a target photo courtesy Shutterstock.