Effects of Performance Shortfalls on Organizational Decisions and Outcomes

The performance context of an organization is an important factor in determining its strategy and outcomes following the strategic choices made. Specifically, negative performance contexts affect organizations more intensely, reducing the resources it has access to, changing how stakeholders are impacted, increasing scrutiny from the media, analysts and shareholders among others, and inviting evaluation and judgment of the decision-making of the CEO and other managers. In this dissertation, the multifaceted nature of performance shortfalls is explored across three essays covering different types of negative performance contexts, to provide a more complete understanding of how performance affect organizations. In the first essay, the focus is on the firm’s lifecycle stage of organizational decline, that presents a critical shortage of resources. We explore how organizations modify their CSR practices in such a context, as there could be both benefits and costs to engaging in CSR during decline. By distinguishing between different types of CSR, we show that firms navigate decline in a manner that incorporates both perspectives on CSR. In the second essay, we highlight the effect of a firm’s proximity to bankruptcy on CEOs’ decision-making based on different temporal perspectives. We suggest that a CEO’s career horizon (or time to retirement) is positively related to firm strategic change, and this effect decreases when a CEO past focus is higher. We further suggest that the dominating effect of objective time (CEO career horizon) versus subjective time (CEO past focus) depends on the firm’s closeness to bankruptcy, a situation that increases the salience of the CEO’s legacy in their decision-making. Finally, the third essay adds a social dimension to performance, looking at performance below social aspirations as a contextual condition. In this study, we show that CEOs’ social class backgrounds affect the characteristics of competitive repertoires they use in terms of complexity and non-conformity. As social comparison is an important aspect of competing in the market, we further study how performance below those of peers in the industry modifies these effects. Overall, this dissertation provides a bird’s eye view of performance shortfalls by exploring different types of negative performance contexts and how these affect different aspects of firm strategy including market, non-market and competitive strategy.