What Role Does Generic Strategy Play in How Managers Adapt Their Aspirations in Response to Performance Feedback?

When managers set aspirations for their firms, they typically compare their own firms’ performance to past aspirations as well as to the performance of social reference groups. We explore how firm generic strategy affects managers’ adaptation of firm aspirations in response to feedback from three social reference groups that vary in terms of breadth (population average, strategic group, and one direct rival). We propose that firm generic strategy (low-cost or differentiation) functions as an organizational information filter through with managers interpret performance feedback. We test for whether generic strategy has a moderating effect on the influence of performance feedback from social reference groups. Based on a longitudinal sample of U.S. airlines, our study shows that all firms are influenced most strongly by their strategic groups. Low-cost and differentiation generic strategies differ in terms of which social reference group motivates a larger reaction when overperforming: low-cost firms are more influenced by the population average which is contributed to by the entire industry than are differentiating firms, while differentiating firms are more swayed by the narrow focus of their direct rivals than are low-cost firms. Although firm strategy represents a core decision at the firm level, to the best of our knowledge, performance feedback research, surprisingly, has not yet integrated generic strategy into its models