The Dynamics of the Performance–Risk Relationship Within a Performance Period: The Moderating Role of Deadline Proximity

Abstract

R isky organizational decisions are frequently made within the confines of performance periods with predefined durations and deadlines for achieving desired levels of performance. The relationship between performance and risk taking has been studied mostly across such periods but rarely within them. Building on the shifting-focus-of-attention model of organizational risk taking, we argue that the temporal proximity of deadlines regulates the focus of organizational attention within a performance period. Decision makers will focus their attention on attaining and maintaining aspirations early in a period; however, as deadlines approach, decision makers in underperforming firms will increasingly be likely to focus on ensuring survival, whereas decision makers in outperforming firms will increasingly be likely to focus on experimenting with slack resources. We propose that the relationship between performance and risk taking should thus be moderated by deadline proximity within a performance period. We tested and found support for our hypotheses in the context of 22,603 fourth-down decisions made by the 32 National Football League teams during the 2000-2005 regular season games. Our findings suggest that the notion of temporally bound performance periods and deadline proximity should play a more central role in attention-based frameworks of organizational risk taking.

Entering new markets: The effect of performance feedback near aspiration and well below and above it

“…As implied above, only a handful of studies have empirically distinguished between situations in the neighborhood of aspiration level and situations that are well below or above it, and consequently, have used nonlinear functions (e.g., Lehman et al ., ; Shimizu, ). To the best of our knowledge, these studies have done this only to examine the effect of performance below aspiration level on managerial decisions.…”

“…Accordingly, they have usually modeled the effect as a modified spline function (linear above and below aspiration level, but with potentially different slopes). Only a handful of studies have empirically distinguished between situations in the neighborhood of aspiration level and situations that are well below or well above it, and consequently, have used nonlinear functions (e.g., Lehman et al ., ; Shimizu, ). To the best of our knowledge, they have done this solely for performance below aspiration.…”

Organizational Structure and Performance Feedback: Centralization, Aspirations, and Termination Decisions

“…This implies a U-shaped relationship between performance below aspirations and rate of phaseout. Small performance shortfalls will be viewed as reparable discrepancies (Lehman et al 2011), and solutions will be sought in the proximity of problem symptoms (Cyert and March 1963). Hence, managers will become more willing to leave the (failing) product on the market longer and to risk resources to bolster sales of the product (Bromiley and Wiseman 1989).…”

“…To model the survival level in this context, we adopt two approaches that have been used in the literature. The first approach is to square the performance below aspirations variable and include it in the specification (Lehman et al 2011). The second approach is to use an indicator variable to model a discrete threshold for the survival level Shapira 1987, 1992;Miller andChen 2004, Boyle andShapira 2012).…”

Goal Selection Internally and Externally: A Behavioral Theory of Institutionalization

“…), accident cost (Baum and Dahlin ), sports teams winning records (Wezel and Saka‐Helmhout ) and game scores (Lehman and Hahn ; Lehman et al . ). Also, there is work showing that a growth goal can be active, but only if the profitability is above the aspiration level (Greve ).…”