03-101
SWINGING FOR THE FENCES: ASPIRATIONS, PERFORMANCE, AND TECHNOLOGICAL BREAKTHROUGHS
Lee Fleming and Philip Bromiley
The behavioral theory of the firm predicts that poor performance
relative to aspirations levels leads to increased effort
and search for innovations while high performance relative
to aspirations allows search without risk of performance falling below aspirations. The classic behavioral arguments do not
specify, however, whether increased search leads to incremental
or significant innovations, how low and high performance
searches differ, or whether performance relative to aspirations
has different effects when those aspirations reflect comparison
to historical performance or comparison to relevant others.
We argue and present evidence that, holding R&D spending
constant, poor and high performance lead to decreased
rates of overall patenting but increased the rates of
breakthrough patenting. Maximum overall patents and minimum
breakthrough patents appear for firms near their reference
points. Taken together, breakthroughs are most likely
to be invented by firms that are doing very well, relative
to their industry, and at the same time, very well or
very poorly relative to their own historical performance.
TOM
47 PAGES
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