Modes of Divisional Control: A Field Study of Performance Measurement and Control Practices in Eight Firms
A. Scott Keating
University of Chicago - Booth School of Business
This paper uses findings from a field study of performance measurement practices in eight firms to identify and describe some of the characteristics of firms divisional and division manager performance evaluation practices. Most economic and accounting theories of performance measurement focus on the use of information to evaluate managers performance ex post. This research revelas that performance evaluation in the eight sample firms consists of three components: (i) ex ante screening of potential division managers to identify candidates with preferences closely aligned to the firm and its senior managers (ii) ex post monitoring of incumbent division managers and (iii) intensive planning and budgeting processes. This study also identifes an important determinant of firms divisional performance evaluation strategies namely the extent of interaction or coordination between divisions. Firms whose corporate managers manage operating divisions as autonomous un-related business - +Autonomy Promoters - control divisional activity through ex post monitoring of results achieved. By contrast firms exploiting synergies between divisions - +Synergy Exploiters - supplement their ex post monitoring programs with either rigorous ex ante screening of potential division managers or intensive planning and budgeting systems. More specifically Synergy Exploiters whose divisions interact and share resources directly - lateral synergy exploitation - use ex ante screening wherease those exploiting synergies and sharing resources indirectly through the corporate office - vertical synergy exploitation - use planning and budgeting systems. The implications of these findings for performance measurement and control theories are discussed.
JEL Classification: L20, M41
Date posted: August 28, 1995
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