Microfoundations of Organizational Goals: A Review and New Directions for Future Research

• Published date: 01 January 2018
• Author: Stefan Linder,Nicolai J Foss
• DOI: http://doi.org/10.1111/ijmr.12154
• Date: 01 January 2018

International Journal of Management Reviews, Vol. 20, S39–S62 (2018)

DOI: 10.1111/ijmr.12154

Microfoundations of Organizational Goals:

A Review and New Directions for Future

Research

Stefan Linder and Nicolai J Foss1

Department of Accounting and Management Control, ESSEC Business School, France, and 1iCRIOS – Department of

Management and Technology,Bocconi University, Italy

Corresponding author email: nicolai.foss@unibocconi.it

Organizational goals are central in managementtheory, yet our understanding of their

antecedents, formation and dynamics, and consequences contains manygaps, in partic-

ular concerning the microfoundationsof how goals are formed and changedand through

which they may affect individual and organizationalperformance. We distill a number

of key themes in the extant literature, use the microfoundations perspective to isolate

research gaps,and suggest a microfoundational framework for futureresearch on orga-

nizational goals. Subsequently, we discuss the theories that are particularly promising

with respect to furthering such research on organizational goals.

Introduction

Goals, such as mission and vision statements, strate-

gic goals, are typically seen as central to the function-

ing, behavior, performance and perhaps evensur vival

of organizations. In fact, Parsons (1956, p. 64) went

as far as seeing the ‘orientation to the attainment of

a specif‌ic goal [ . . . ] as the def‌ining characteristic of

an organization’. Similarly, Hayek’s (1973) main cri-

terion for distinguishing between ‘spontaneous’ (e.g.

markets) and ‘designed orders’ (e.g. organizations) is

to what extent the relevant ‘order’ pursues a specif‌ic

goal. As such, organizational goals would seem to

be central to almost all organizational and strategic

theory. They def‌ine a direction, integrate lower-level

goals and efforts, inf‌luence behavioral standards, may

have motivational consequences for employees, and

spill into the communication and branding efforts of

the organization (Drucker 2001; Foss and Lindenberg

2013). In fact, in their seminal contribution, Cyert

and March (1963, Chap. 3, entitled ‘Organizational

goals’) argued that the central problem in building a

‘theory that predicts and explains business decision-

making behavior’ is making sense of goals at the

organizational level.

The problem is fundamentally microfoundational:

Since only individuals can truly have goals, what

sense can we make of goals that are placed at the

organizational level (Cyert and March 1963, p. 30)?

Many theories ascribe goals to supra-individual en-

tities, whether teams, groups, projects, departments,

divisions, business units, f‌irms, armies or even na-

tions, but the commonsense objection is that ascribing

goals to collective entities is at best ‘shorthand’ for

complicated processes involving multiple, interact-

ing, goal-pursuing individuals. Additionally, Herbert

Simon (1964) pointed out that, while the notion of

organizational goal is indeed indispensable to orga-

nizational theory, it easily leads to the organization

being reif‌ied as a unitary actor. Such reif‌ication is

not wrong for all purposes (e.g. understanding the

formation of prices; Machlup 1967), but a concern

with organizations per se requires rejecting it, which

raises the analytical challenge of reconciling micro

and macro. Simon’s (1964) specif‌ic solution was to

decompose organizational goals into the constraints

that are put on individuals in their organizational

roles, constraints that only have an indirect relation to

individuals’ personal motives for being in a particular

job.

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S40 S. Linder and N.J. Foss

More than f‌ive decades have passed since the

publication of Cyert and March’s (1963) book and

Simon’s (1964) paper. Much has happened on the

theory side that is relevant to the links between in-

dividual and organizational goals. In particular, goal

content and aspiration level have attracted substantial

scholarly interest (see Shinkle 2012 for a review).

Similar attention has been devoted to studying the

consequences of goal incongruence, in particular, the

effects of conf‌licting interests under asymmetrically

distributed information and potential remedies to the

resulting problems (e.g. Alchian and Demsetz 1972;

Holmstr¨

om 1979; Holmstr¨

om and Milgrom 1991;

Jensen and Meckling 1976). Ambiguity of organi-

zational goals, its antecedents and consequences has

been another theme that has been studied (albeit to a

smaller extent) in research over the past two decades

(e.g. Jung 2014). Even less work has focused on other

important themes, such as how f‌irms handle multiple

organizational goals (notable exceptions are e.g.

Chrisman et al. 2012; Ethiraj and Levinthal 2009;

Kotlar et al. 2014a; Sundin et al. 2010) and the actual

processes of goal formation, succession and displace-

ment (e.g. Abelson 1983; Rainey and Jung 2014).

Adopting the individualistic perspective that also

informed Cyert and March (1963) and Simon (1964),

we ask what the extant literature tells about the

microfoundations of organizational goals. We f‌irst

discuss the meaning of microfoundations in the

context of organizational goals. A microfoundational

approach implies both a constitutive/reductive quest

and a causal quest (Felin et al. 2015). With respect to

the former, organizational goals should be reduceable

(and reduced) to some aggregation of the lower-level

goals of the various stakeholders of the organization

(possibly organized as coalitions). The causal quest,

in turn, implies that the emergence, change and possi-

ble decline or removal of organizational goals be ac-

counted for in terms of the actions and interactions of

individuals, that the consequences of organizational

goals be traced out in similar individualistic terms.

We then conduct a systematic review (Denyer and

Tranf‌ield 2008) of the extant literature on organiza-

tional goals, with respect to what it has to offer from

a microfoundations perspective. The review serves

us to identify key themes in extant research – such

as, research on the nature and content of goals or di-

rected towardsunderstanding process aspects of goals

– and to identify persisting research gaps from a mi-

crofoundations perspective. In particular, if organiza-

tional goals are embedded in multi-level systems (e.g.

Cyert and March 1963; Thompson 1967), inter-level

processes may be crucial for understanding the emer-

gence and nature of specif‌ic organizational goals.

We argue that many cross-level processes remain ill-

understood.1We proffer a specif‌ic microfoundations

framework for analyzingthe cross-level aspects of or-

ganizational goals and illustrate the framework based

on exemplary insights from extant literature. Drawing

on the frameworkand the systematic literature review,

we end with discussing theories that seem particularly

promising with respect to closing the gaps in organi-

zational goal research.

Microfoundations of organizational

goals?

What are ‘microfoundations’?

‘Microfoundations’ have received much interest in

management theory over the past decade since the

initial formulations in Felin and Foss (2005), Gavetti

(2005) and Teece (2007). The key aim of what Felin

et al. (2015) describe as the ‘microfoundations move-

ment’ has been to decompose collective concepts in

terms of their lower-level constituent components,

explore how the interaction of individuals leads to

emergent, collective and organization-leveloutcomes

and performance, and examine how relations between

macro variables are mediated bymicro actions and in-

teractions. Microfoundational explanation is a kind of

multilevel explanation that privilegesthe micro level.

It is concerned with how causality unfolds between

and within levels in terms of mechanisms. Felin et al.

(2012) specif‌ically def‌ine microfoundations as a

theoretical explanation, supported by empirical ex-

amination, of a phenomenon located at analytical

level N at time t(Nt). In the simplest sense, a base-

line micro-foundation for level Ntlies at level N−1

at time t−1, where the time dimension ref‌lects a

temporal ordering of relationships with phenomena

at level N−1 predating phenomena at level N. Con-

stituent actors, processes, and/or structures, at level

N−1t−1may interact, or operate alone, to inf‌luence

phenomena at level Nt. Moreover, actors, processes,

and/or structures at level N−1t−1also may moder-

ate or mediate inf‌luences of phenomena located at

level Ntor at higher levels(e.g. N+1t+1to N+nt+n).

(Felin et al. 2012, p. 1355)

1Also, organizational theory suggests that goals may ref‌lect

the behavior and inf‌luence of macro playersor broader social

forces (Thompson and McEwen 1958). However, for reasons

of space and complexity, we only touch on such ‘macro-

foundations’ in a peripheral manner.

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