Deviations from aspirational target levels and environmental and safety performance: Implications for operations managers acting irresponsibly

Date01 September 2019
Published date01 September 2019
DOIhttp://doi.org/10.1002/joom.1032
AuthorDi Fan,Mark Pagell,Chris K.Y. Lo,Frank Wiengarten
RESEARCH ARTICLE
Deviations from aspirational target levels and environmental
and safety performance: Implications for operations managers
acting irresponsibly
Frank Wiengarten
1
| Di Fan
2
| Mark Pagell
3
| Chris K.Y. Lo
4
1
Universitat Ramon Llull, ESADE,
Barcelona, Spain
2
Research School of Management,
Australian National University, Canberra,
Australia
3
Smurfit Graduate School of Business,
University College Dublin, Carysfort
Avenue, Blackrock, Co. Dublin, Ireland
4
Institute of Textiles and Clothing, The
Hong Kong Polytechnic University, Hong
Kong, Hong Kong
Correspondence
Di Fan, Research School of Management,
The Australian National University, RM
1121, Copland Bld (24), Canberra ACT
2600, Australia.
Email: Di.fan@anu.edu.au
Handling editor: Brian Jacobs
Abstract
The relationship between sustainable operations and a firm's financial performance
has been an ongoing focus of operations management scholars. Previous literature
has extensively explored the impact of acting responsibly on financial performance.
This article applies the behavioral theory of the firm and prospect theory to assess
the much-neglected reverse relationship, exploring whether a firm's relative aspira-
tional financial performance impacts its likelihood of acting irresponsibly. Further-
more, we explore whether operational slack in the form of capacity, productivity,
and inventory attenuates a firm's likelihood of acting irresponsibly when its actual
financial performance deviates from its aspirational level. We use a matched pair
design with privately held manufacturing firms in the United Kingdom who acted
irresponsibly matched with similar firms who did not act irresponsibly. While most
firms do not act irresponsibly, we find that the further a firm moves (positively or
negatively) from its aspirational level of financial performance, the more likely it is
to act irresponsibly. The results also indicate that slack generally does not prevent
managers from acting irresponsibly, especially when performing relatively well.
This study contributes to the sustainable operations literature and provides impor-
tant theoretical, managerial, and policy implications.
KEYWORDS
aspiration level, behavioral theory of a firm, hubris, problemistic search, sustainability
1|INTRODUCTION
The operations management literature has for decades
explored how firms can become more environmentally and
socially sustainable (e.g., Klassen & Whybark, 1999). Yet, a
small but significant number of firms continue to take the
risk of neglecting their environmental and social responsibil-
ities (Huq, Chowdhury, & Klassen, 2016; Jacobs & Singhal,
2017; Pagell & Gobeli, 2009; Wilhelm, Blome, Bhakoo, &
Paulraj, 2016). Recent examples include sweat shop labor in
Zara's supply chain and Mattel selling toys coated in toxic
paint (Burgen & Phillips, 2011; Wilhelm et al., 2016). The
negative implications of acting irresponsibly, which include
tarnishing a firm's reputation, lawsuits, financial losses, and
increases in the cost of capital, are well-known and apparent
(Lange & Washburn, 2012), yet irresponsible behavior
continues.
Researchers in strategic management, finance, and mar-
keting have explored irresponsible behavior from multiple
perspectives, such as producing unsafe consumer goods,
misleading marketing practices, and engaging in financial
misrepresentation. Operations management research gener-
ally addresses these issues indirectly by including environ-
mental and social concerns in research examining more
Received: 13 July 2017 Revised: 12 April 2019 Accepted: 23 April 2019
DOI: 10.1002/joom.1032
490 © 2019 Association for Supply Chain Management, Inc. J Oper Manag. 2019;65:490516.wileyonlinelibrary.com/journal/joom
responsible or sustainable behavior (Pagell & Shevchenko,
2014). The operations management literature has, with a few
notable exceptions (e.g., Jacobs & Singhal, 2017), not
explored the drivers of irresponsible behavior. Our research
focuses on irresponsible behavior by exploring the role of
operations management in violating or breaching environ-
mental and safety regulations.
The behavioral theory of the firm (BTF) appears to pro-
vide an important explanation as to why some companies
continue to behave irresponsibly. The BTF proposes that
decision makers evaluate the need to change existing rou-
tines by comparing organizational performance with a target
or aspiration level (Cyert & March, 1963; Desai, 2016;
March & Simon, 1958). Irresponsible behavior could result
when performance is not at aspirational levels. The BTF
posits that the further a firm performs above or below their
aspirational level, the more likely they will be to engage in
risky behaviors, whether that risky behavior is changing the
strategy; investing in new technology; or breaching environ-
mental, health, and safety (EHS) regulations (e.g., Harris &
Bromiley, 2007). For firms performing below their aspira-
tional levels this is intuitive; their performance is (relatively)
poor, and they need to catch up to avoid going out of busi-
ness. In addition to being intuitive, this prediction is in-line
with other theories of firm or individual risk taking
(Hoskisson, Chirico, Zyung, & Gambeta, 2017).
However, that firms performing above their aspirational
levels would take similar risks is counter-intuitive. While
this prediction does find some empirical support (e.g.,
Mishina, Dykes, Block, & Pollock, 2010), there are multiple
explanations for these findings. The first is that firms per-
forming above aspirations are hubristic and believe they can
get away with actions others cannot (e.g., Tarakci, Ates,
Floyd, Ahn, & Wooldridge, 2018). The second is that firms
performing well, especially those doing extremely well,
believe that future performance is likely to decrease, and
hence they take extreme measures to avoid this loss
(e.g., Mishina et al., 2010). The hubris and loss aversion
explanations are both about framing future outcomes. How-
ever, they are also somewhat contradictory. Hubris is a form
of overconfidence about future outcomes, while loss aver-
sion is a form of pessimism about the future. In addition, the
prediction that firms that are doing well will engage in risky
behavior conflicts with other theories of risk taking
(Hoskisson et al., 2017), such as prospect theory (PT), which
posits that individuals (e.g., managers) are risk seeking when
facing losses and risk averse when facing the prospect of
potential gains (Kahneman & Tversky, 1979).
This disputed space has not been addressed at the opera-
tional level. Thus, we use the BTF and PT to explore the
environmental and occupational health and safety aspects of
irresponsible behavior to answer the following question:
(a) How does a company's performance relative to its aspi-
rational level of performance affect its decision to breach
environmental and safety regulations?
In addition, we note that the choice of whether or not to
breach regulations is likely a function of options. For opera-
tions managers options often come in the form of slack, and
slack has been shown to predict the likelihood of accidents
(e.g., Wiengarten, Fan, Lo, & Pagell, 2017). If the predic-
tions of the BTF apply to breaching environmental and
safety regulations, then slack may explain why. Specifically,
the presence of slack would be indicative of options. Firms
performing below aspirations would explore breaching only
if they had no other options, for example, no slack. Simi-
larly, firms performing above aspirations only breaching
when slack is absent fits with the loss aversion prediction;
firms with no slack perceive that breaching is the only
option available to meet their future performance goals, and
therefore a small number of them breach. However, if firms
performing above aspirations breach even when they have
slack, hubris would seem to be a more reasonable explana-
tion for their irresponsible action. Thus, we also address the
following research question: (b) Does the availability of
resources controlled by operations managers reduce the
chances of irresponsible behavior in situations when perfor-
mance deviates from the aspirational level? To explore these
research questions, we compiled secondary data collected in
the United Kingdom from private manufacturing firms. We
conceptualize aspirational performance in terms of a firm's
relative performance compared to both industry and its own
historical performance (Cyert & March, 1963; Harris &
Bromiley, 2007).
We extend previous research in several critical ways.
First, we add to the nascent body of research that explores
the role of aspirational or relative performance in irresponsi-
ble behavior from the perspectives of the BTF and PT simul-
taneously. Second, our focus is on how operations managers
respond to performance that is either above or below aspira-
tional levels. The irresponsible behavior examined in this
research is the breaching of EHS regulations. Safety and
environmental management both occur in the operational
sphere, meaning that the actions of operational managers
would be directly related to breaches of EHS regulations,
while the same managers are unlikely to have a direct role in
behaviors such as misstating financial reports. Finally, by
exploring the decision to breach simultaneously with relative
performance and slack, we provide greater theoretical clarity
as to why firms breach, especially when performing well.
The vast majority of firms do not breach EHS regula-
tions. However, our results indicate that the further a firm
moves (positively or negatively) from its aspirational level
of financial performance, the more likely it is to be one of
the small number of firms that do breach EHS regulations.
WIENGARTEN ET AL.491

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