Managerial Myopia and Non-Financial Measures: The Case of Customer Satisfaction Mitigating Hard-Selling

45 Pages Posted: 28 Mar 2000

See all articles by Alex Thevaranjan

Alex Thevaranjan

Syracuse University - School of Management

Kissan Joseph

University of Kansas - School of Business

Dhinu Srinivasan

University of Pittsburgh - Katz Graduate School of Business

Abstract

Increasingly, firms are augmenting financial measures of performance with non-financial measures of performance with a view to instill a long-run focus and reduce managerial myopia. Thus, in this paper, we utilize an agency-theoretic model to examine closely how financial measures cause managerial myopia and how non-financial measures mitigate managerial myopia. To this effect, we explicitly model a specific myopic behavior within the personal selling function, namely, hard-selling. In this context, we find that incentives based on financial measures (gross profits) do not always cause managerial myopia and that non-financial measures (customer satisfaction) are not always useful in mitigating managerial myopia. However, when non-financial measures are useful, we find that they can serve two different roles, namely, suppressing hard-selling and enhancing the utilization of the financial measure. Moreover, their introduction can either increase or decrease the weight placed on financial measures. Finally, we find that improvements in the precision of non-financial measures increase both the weight placed on non-financial measures as well as the weight placed on financial measures.

Key Words: Non-financial measures; Agency theory; Salesforce compensation

JEL Classification: J33, M41, D23

Suggested Citation

Thevaranjan, Alex and Joseph, Kissan and Srinivasan, Dhinu, Managerial Myopia and Non-Financial Measures: The Case of Customer Satisfaction Mitigating Hard-Selling. Available at SSRN: https://ssrn.com/abstract=208388 or http://dx.doi.org/10.2139/ssrn.208388

Alex Thevaranjan

Syracuse University - School of Management ( email )

Department of Accounting
900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States
315-443-3355 (Phone)
315-443-5457 (Fax)

Kissan Joseph

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7535 (Phone)
785-864-5328 (Fax)

Dhinu Srinivasan (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States
412-648-1513 (Phone)
412-648-1693 (Fax)

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