Modes of Divisional Control: A Field Study of Performance Measurement and Control Practices in Eight Firms

Posted: 28 Aug 1995  

A. Scott Keating

University of Chicago - Booth School of Business

Abstract

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

Suggested Citation

Keating, A. Scott, Modes of Divisional Control: A Field Study of Performance Measurement and Control Practices in Eight Firms. Available at SSRN: https://ssrn.com/abstract=55454

A. Scott Keating (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4078 (Phone)
773-702-0458 (Fax)

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