This book is about how organizations react to performance feedback. It presents a theory of organizations learning from their experience by collecting performance measures, creating aspiration levels based on their own past performance or that of other organizations, and changing organizational activities if the performance is lower than the aspiration level. The mechanism is one of simple self-regulation by attempting to reach a goal not currently met but not seeking, in the short run at least, to go further than the level that just achieves it. Organizations with performance below the aspiration level of their managers have higher rates of strategic change, R&D expenditure, innovation, and investment. These activities influence the performance and risk of the organization, but otherwise they have little in common. All are affected by the organizational performance because managers are willing to try a wide range of strategic actions to solve a problem of low performance.

We can see this reaction to performance feedback reflected in the behavior of individual firms. After the Japanese car makers had great successes in the 1980s US auto market, General Motors was still the world's largest auto maker and the dominant firm in the USA. It was doing less well than it had in the past, however, with its domestic market share in cars falling from 49% in 1980 to below 40% in 1987. During this period, General Motors implemented a remarkable series of projects to make up for the perceived shortfall.