Cost reduction vs innovative search in R&D

This study aims to compare alternative search behaviors managers enact with regard to firm aspirations.

The behavioral theory of the firm predicts that poor performance relative to aspiration levels leads to search for ways to raise performance over aspirations. Most researchers have assumed search leads to risk‐taking or innovation. However, firms might search for ways to raise performance without incurring additional risk, such as reducing expenses. This paper compares the two models of search using data on research and development (R&D) spending.

The results generally support the cost cutting argument; R&D spending increases monotonically with performance relative to social aspirations.

These results suggest researchers need to consider searches that emphasize cost reduction, as well as searches that emphasize innovation.

Overall, this paper extends behavioral work on risk‐taking and R&D to provide a more complex view of the interactions between kinds of aspiration levels and both innovation and search behavior.