Performance Effects of Strategic Alignment and Clarity

Abstract

The alignment of a firm’s performance measurement system and its strategic objectives is fundamental to strategic management control, at least in part because performance measures and stated strategy represent separate sources of information that workers can rely on to guide their efforts. We experimentally examine the effects of strategic alignment and strategic clarity (i.e., the specificity with which strategic objectives are communicated) on workers’ performance on a multidimensional production task. We find a significant disordinal interaction of strategic alignment and clarity on worker performance – strategic alignment improves performance under a vague strategy statement but impairs performance under a clear strategy statement. These results are consistent with strategic clarity with an aligned performance measure magnifying the tradeoff between conflicting performance dimensions, leading to a focus on accuracy over volume and lower overall performance. Our results confirm the relevance of alignment in strategic performance measurement systems, and suggest strategic clarity as a mechanism for overcoming the negative performance effects of imperfectly aligned performance measures, a common organizational dilemma.

Keywords: performance measures, alignment, congruity, strategy, clarity