Financial performance measurement effects on hierarchical consistency and performance

Vagneur, Kathryn (1995) Financial performance measurement effects on hierarchical consistency and performance. Doctoral thesis, University of London: London Business School.

Abstract

Traditional management theory considers performance measurement an indicator of outcomes. The central proposition of this research is that performance measurement control systems influence outcomes within organisations. If this proposition finds general empirical support, then implementation of change strategies and evolutionary environmental change may require pro-active management of internal company performance measurement systems. Systematic theory development and testing are required to determine the efficacy and generalisability of such a proposition. This thesis is a contribution towards such an effort. The thesis explored a subtle structural difference within formal measurement control systems. The thesis was guided by two main research questions: Is reliance on financial measurements within formal measurement control systems associated with higher performance; and, Is reliance on financial measurements within formal measurement control systems associated with greater consistency of objectives and priorities within the hierarchies of companies? The research questions were explored in a multi-method empirical study. The reliance construct was operationalised using both objective and perceptual variables. These variables were continuous and ranged from high financial reliance ("low non-financial reliance") to "high non-financial reliance" within the formal measurement control system. The research was cross-sectional with the firm (n=20) and unit within those firms (n=26) as the levels of analysis. The firms in the sample were all British-based, and all were experiencing increasing international competition and pressure for improvement. Data collection methods included in-depth semi-structured interviews with individuals at multiple hierarchical levels (n=270) and a written follow-up questionnaire answered by a sub-set of the interviewees (n=111). Archival records, CEOs and external evaluators provided data on performance. Multiple regression was used for deductive quantitative data analysis; multiple field studies and pattern matching were used for inductive qualitative analysis. Goodness-of-fit tests were performed on both sets of results in order to assess the weight of the evidence. Integration of the relevant, but diverse, cross-disciplinary literatures suggested a model of constructs for deductive analysis. Propositions were developed from the research questions. Regression testing on a priori linear models provided sufficient evidence for goodness-of-fit tests to suggest that there were significant associations between greater reliance on non financial performance measurements and both better performance and greater hierarchical consistency. No evidence was found in support of an association between high reliance on financial performance measurements and higher performance or greater hierarchical consistency. Inductive analysis sought to identify patterns of organisational behaviour of potential influence in organisational performance, and to test for associations between those patterns and high-low variation in non-financial reliance using pattern matching. First, twenty-two patterns of organisational behaviour were identified when two polar examples of nonfinancial reliance were compared. Goodness-of-fit tests on the evidence provided by the remainder of the sample suggested that 9 of the patterns were associated with high-low variation in reliance on non-financial performance measurements. All of the patterns which had significant associations could arguably influence company efforts to improve organisational performance. These included low awareness of competitors, passivity among middle managers, risk avoidance by individuals, and inward, parochial focus. Although no causal relationships were proven, the evidence suggested that management may benefit from a reconsideration of current practice and a shift towards increased organisational reliance on non financial performance measurements.