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

This study explores the determinants of organizational aspirations and articulates that aspirations play dual roles that create important tensions for managers. On the one hand, aspirations serve an evaluative role as a benchmark for grading performance. On the other, they also have an allocative role in influencing the allocation of limited resources. Our theory suggests that managers will be more aggressive in setting aspirations when there is increasing pressure to acquire resources, but will set more conservative 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 pressure and the cost 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 highlights a novel aspect of how aspirations are set that complement existing explanations, and links agency and governance explanations with behavioral theory.