This study addresses the relationship between micro and macro level adaptation processes. We propose that the top manager acts as a perceptual filter that links organizational decisions to the firm’s performance in its environment. The study illuminates a chain of causality by which managerial intervention is effectuated. The basic proposition is that organizational decision makers observe the organization’s performance, adjust their behavior in response to changed beliefs, and subsequently change the organization’s routines. Theoretically, the paper builds upon and extends prior work in the behavioral theory of the firm (Cyert and March, 1963; March, 1991; Levinthal and March, 1981, 1993). Two samples of medium-sized manufacturing and service firms are analyzed. The empirical results point towards important contextual differences between manufacturing and service firms. We find that managerial control behavior changes in response to organizational performance, and that this leads to changes in organizational formalization. In manufacturing firms we found a negative relationship between managerial control and past financial performance and the opposite relationship for service firms. The presence of financial slack therefore influences managerial perceptions differently in manufacturing firms. In service firms, as managerial control increases, the means for achieving control of others’ behavior also increases. Increased managerial control is achieved through increased rule orientation, complemented by increased goal orientation. Both provide increased efficiency in routine situations. In manufacturing firms, goal orientation was not related to rule orientation, just as the effect was not associated to financial performance. At least for some firms, a high degree of formalization is likely to hinder adaptation, and many firms are likely to substitute exploitation strategies for exploration strategies. The paper concludes that in the process of changing organizational routines, top managers perform a critical link between information about organizational performance and action. The sigificance managers attach to performance information is clearly context dependent.
|Place of Publication||Copenhagen|
|Publisher||LOK Research Center. CBS|
|Number of pages||32|
|Publication status||Published - 2000|
|Series||LOK Working Paper|