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Communication, Incentives, and the Execution of a Strategic Initiative

37 Pages Posted: 30 Apr 2014 Last revised: 28 Jan 2017

Jeremy Hutchison-Krupat

University of Virginia - Darden School of Business

Date Written: January 27, 2017

Abstract

Senior leadership has two primary levers to influence a direct report: incentives and communication. Financial incentives are credible and precisely specified but offer limited flexibility. In contrast, communication is flexible but lacks precision, and must be deemed credible to affect a direct report's actions. We study a setting where senior leadership seeks to add a new initiative to their organization's portfolio. The initiative's potential to create value is not initially well-understood. Senior leadership eventually obtains more precise information on the initiative's value, and subsequently, may communicate this information to their direct report. We analyze senior leadership's incentive and communication decisions, and ultimately their portfolio decision. We find senior leadership's communication only affects a direct report's actions when a new initiative's potential to create value is sufficiently uncertain. Additionally, we find instances where an organization may benefit from communication that offers less specificity.

Keywords: New Product Development, Incentives, Communication, Executing Strategy, Strategy Implementation, Strategy Cascading

JEL Classification: D23, J33, M52, M54, O31, O32

Suggested Citation

Hutchison-Krupat, Jeremy, Communication, Incentives, and the Execution of a Strategic Initiative (January 27, 2017). Darden Business School Working Paper No. 2430904. Available at SSRN: https://ssrn.com/abstract=2430904 or http://dx.doi.org/10.2139/ssrn.2430904

Jeremy Hutchison-Krupat (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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