Causality Rules: Performance Feedback on Hierarchically Related Goals and Capital Investment Variability

• Date: 01 December 2019
• Author: Robert S. Nason,Ambra Mazzelli,Josip Kotlar,Alfredo De Massis
• Published date: 01 December 2019
• DOI: http://doi.org/10.1111/joms.12432

Causality Rules: Performance Feedback on

Hierarchically Related Goals and Capital Investment

Variability

Ambra Mazzellia,b, Robert S. Nasonc, Alfredo De Massisd,e

and Josip Kotlarf

aMassachusetts Inst itute of Technolog y; bAsia School of Busine ss; cConcordia Un iversity; dFree Univ ersity of

Bozen-Bolzano; eLancaster Univers ity Management School; fSch ool of Management Pol itecnico di Mil ano

ABST RACT We extend March and Simon’s (1958) analysis of strateg ic decisions by distingui sh-

ing between two r ules for allocating attention – priority ver sus causality. We develop theory

concerning causa lity rules which have been largely overlooked i n prior literature. Specifica lly,

we examine how perform ance feedback on the intermediate productivit y goal and the higher-

order profitabil ity goa l independently and jointly inf luence the var iability of firm capita l

investments. Panel ana lysis of 2,477 Spanish manufacturin g firms reveals th at these goa ls

jointly affect t he variability of capital invest ments through both priority and causa lity attention

rules. Our st udy provides new in sights on how firms handle mult iple goals, de construct

performance feedback , and cope with the attentional constra ints of bounded rationality.

Keywo rds: attention ru les, capital investment variabil ity, organi zational goals, performance

feedback

INTRODUCTION

March and Simon’s (1958) Organizations has fuelled a v ibrant research stream on orga-

nizations’ responses to problems. Central to O rganization s is the concept of managerial

attention. ‘Understanding the ways in wh ich attention is allocated is cr itical to under-

standing decisions. A s a result, much of the book is devoted to theories of search: to

examine when, where, and how organizations sear ch for information about urgent prob-

lems, alternatives, and their consequences’ (March and Simon, 1958, p. 4). Subsequent

Journal of Man agement Studi es 56:8 December 2019

doi:10. 1111/j om s .124 32

Address for correspondence: Alfredo De Mass is, Free University of Bozen-Bol zano, Bolzano, 39100, Italy and

Lancaster Uni versity Man agement School, La ncaster, LA1 4YX , UK (alfredo.dem assis@u nibz.it, a.de-

massis@lancaster.ac.uk)

© 2018 The Authors. Journ al of Management Stud ies published by Societ y for the Advancement of Mana gement

Studies and Joh n Wiley & Sons Ltd

This is an op en access article under the ter ms of the Creative Commons Att ribution License, which per-

mits use, dis tribution and reproduction in a ny medium, provided the orig inal work is properly cited.

Causality Rules 1631

© 2018 The Authors. Journ al of Management Stud ies published by Societ y for the Advancement of Mana gement

Studies and Joh n Wiley & Sons Ltd

empirical studies provide consistent ev idence that organ izations are unlikely to consider

alternatives to the present course of action un less they face organizat ional problems

(Gavetti et al., 2012). The behavioural approach emanating from March and Simon

(1958) has become dominant in strategy and organ izational research ( Weick, 2019).

However, there remain concepts in their 1958 book that lie dormant and insuf ficiently

expounded in the literature.

First, while studies analyse how performance feedback influences absolute levels of re-

source investment or strategic activity (e.g., Audia and Greve, 2006; Desai, 2008; Greve,

2003b, 2003c), March and Simon’s theory focuses more on organizational response

variability. They describe how decision-makers tend to rely on learned patterns of be-

haviours, but are provoked into deviating from such patterns when facing organizational

problems. Across organizations, variability emerges due to heterogeneity in how organi-

zations structure attention by decomposing problems into sub-goals. Thus, how perfor-

mance feedback induces variability in response patterns deserves further investigation

(Gilbert, 2005; Maritan, 2001).

Second, although March and Simon observe that organizations pursue multiple

goals, studies have largely concentrated on a single performance goal: firm profitability

(Shinkle, 2012). Those that consider multiple goals assume that firms shift their attention

as goals become more salient based on a priority rule (Cyert and March, 1963; Greve,

2008; March and Shapira, 1992). Yet, March and Simon (1958) suggest that firms struc-

ture goals hierarchically to support the ultimate goal of profit maximization. Specifically,

firms use means-end relations to guide members’ attention – a mechanism we refer to as

causality-based attention. When problem symptoms do not provide a measuring rod to com-

pare alternative courses of actions, sub-goals replace higher-level goals and guide action

(March and Simon, 1958, p. 177). Unfortunately, we still lack evidence about causality

rules in decision making.

In this study, we seek to revitalize these critical but largely untapped ideas in Organizations.

Building on March and Simon’s analysis of attention and their notion of interlinked

sub-goals, we examine how feedback on profitability and productivity influence capital

investment variability. Using a sample of Spanish manufacturing firms, we find that devi-

ations from profitability and productivity aspirations increase capital investment variabil-

ity, interacting through priority and causality attention rules. Thus, we seek to revitalize

the powerful but largely dormant ideas in March and Simon (1958). First, we reori-

ent research on organizational responses to performance feedback towards March and

Simon’s view of organizational goals as multiple and hierarchically related. As such, goal

interactions are a key factor explaining heterogeneous strategic decisions across firms.

Second, we shed new light on the nature of March and Simon’s (1958) conceptualization

of bounded rationality. In particular, organizational attention is distributed according to

distinct rules, each manifesting under different performance conditions. Finally, drawing

on March and Simon’s (1958) conceptualization of organizational responses character-

ized by the two steps of evocation and execution, we highlight the role that different goals

play therein. In so doing, we demonstrate the utility of March and Simon’s insights for

analysing the drivers of capital investment decisions (Sengul et al., 2019).