Grow up to be Different: Firm Responses to Performance Feedback over Their Life Cycle
| Authors | |
|---|---|
| Year of publication | 2019 |
| Type | Article in Proceedings |
| Conference | Proceedings of the 14th European Conference on Innovation and Entrepreneurship ECIE 2019 |
| MU Faculty or unit | |
| Citation | |
| web | http://dx.doi.org/10.34190/ECIE.19.107 |
| Doi | http://dx.doi.org/10.34190/ECIE.19.107 |
| Keywords | R&D investment; performance feedback; organizational life cycle; manufacturing firms |
| Description | Investment in research and development projects has the potential of bringing advantages to the firm after the project is finished. These long-term benefits are on the other hand counterbalanced by short-term costs of running projects. The bet on a future innovation is always uncertain, and it takes several years before it will be clear whether it turned out into a gain or a loss. Nevertheless, the question of whether the firm considers such a bet worthwhile may be shaped a priori by its situation. The literature on performance feedback theory generally considers investment in research and development as a response to unsatisfactory performance, i.e., it assumes that the firm attempts to solve its performance problems via investment. On the other hand, some studies point to moderating role of slack resources, proximity to bankruptcy and other factors that shape firms’ preferences of more or fewer investments in response to negative performance feedback. In our research, we propose that these preferences are much shaped by the firm’s life cycle stage, which is beside other factors characterized by differences in above-mentioned moderators. In this sense, we assume that firms’ responses to performance feedback differ systematically, which may explain contradictory findings we currently observe across empirical studies based on the performance feedback theory. Using a sample of U.S. industrial firms, the most commonly studied population in the literature, we show how firms’ responses are shaped by life cycle stages they are currently in. The findings have considerable implications for the study of firm strategic behavior. First, they help to explain when and why some firms see research and development as a potential solution for unsatisfactory performance; while other firms in the same situation see it as a good target for cost-cutting. Second, they help in reconciling contradictory findings of the empirical studies in the performance feedback literature. |
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