Strategic Responses to Poor Organizational Performance: A Test of Competing Perspectives

Abstract

Two widely cited, yet disparate, theoretical views of the relationship between poor performance and subsequent organizational action appear in organizational research. The behavioral theory of the firm posits that poor performing organizations will make strategic changes in, for example, the products and services they offer. In contrast, the threat-rigidity perspective predicts rather conservative responses; poor performers are expected to rely on previous actions to reverse their poor outcomes. We examined these competing predictions using data from a regional sample of hospitals. The results offer support for the behavioral theory of the firm and no support for threat-rigidity. We derive several implications from these findings in an effort to guide future research.