Business Research Assignment
Accounting Organizations and Society, Vol. 10, No. 1, pp. 51-66, 1985.
Printed in Great Britain
0361-3682/85 $3.00+.00
~ 1985 Pergamon Press Ltd.
LINKING C O N T R O L SYSTEMS T O BUSINESS UNIT STRATEGY:
IMPACT ON PERFORMANCE*
V. GOVINDARAJAN
The Ohio State University and ANIL I~ GUPTA
Boston University
Abstract
Rooted in continguencytheory, this paper examines linkagesbetween strategy, incentive bonus system and effectivenessat the strategic busines unit (SBU) level within diversifiedfirms.Data from 58 SBUsreveal ( 1) that greater reliance on long-run criteria as well as subjective (non-formula) approaches for determining the SBUgeneral managers' bonus contributes to effectivenessin the case of"build" SBUsbut hampers it in the case of "harvest" SBUs,and (2) that the relationship between extent of reliance on short-run criteria and effectiveness is virtually independent of SBUstrategy.
R e c e n t studies in a c c o u n t i n g a n d c o n t r o l have t e n d e d to utilize " c o n t i n g e n c y " rather than " o n e best way" perspectives. Mirroring earlier research in o r g a n i z a t i o n t h e o r y (e.g., Burns &
Stalker, 1961; W o o d w a r d , 1965; Lawrence &
Lorsch, 1967), these studies have sought to u n c o v e r the i m p a c t of size ( M e r c h a n t , 1981), technology (Daft & McIntosh, 1981), environm e n t (Hayes, 1977; Govindarajan, 1 9 8 3 ) and organizational structure ( B r u n s & W a t e r h o u s e ,
1975; Merchant, 1981 ) o n the design of b u d g e t s a n d o t h e r organizational c o n t r o l mechanisms.
G i v e n this r e l e v a n c e of d e v e l o p m e n t s in organization t h e o r y for research o n organizational control, it is n o t e w o r t h y that w h i l e the b r o a d e r field of o r g a n i z a t i o n t h e o r y has, in r e c e n t years, c o m e to v i e w organizational strategy as yet a n o t h e r
a n d p e r h a p s the p r e - e m i n e n t s o u r c e of
Printed in Great Britain
0361-3682/85 $3.00+.00
~ 1985 Pergamon Press Ltd.
LINKING C O N T R O L SYSTEMS T O BUSINESS UNIT STRATEGY:
IMPACT ON PERFORMANCE*
V. GOVINDARAJAN
The Ohio State University and ANIL I~ GUPTA
Boston University
Abstract
Rooted in continguencytheory, this paper examines linkagesbetween strategy, incentive bonus system and effectivenessat the strategic busines unit (SBU) level within diversifiedfirms.Data from 58 SBUsreveal ( 1) that greater reliance on long-run criteria as well as subjective (non-formula) approaches for determining the SBUgeneral managers' bonus contributes to effectivenessin the case of"build" SBUsbut hampers it in the case of "harvest" SBUs,and (2) that the relationship between extent of reliance on short-run criteria and effectiveness is virtually independent of SBUstrategy.
R e c e n t studies in a c c o u n t i n g a n d c o n t r o l have t e n d e d to utilize " c o n t i n g e n c y " rather than " o n e best way" perspectives. Mirroring earlier research in o r g a n i z a t i o n t h e o r y (e.g., Burns &
Stalker, 1961; W o o d w a r d , 1965; Lawrence &
Lorsch, 1967), these studies have sought to u n c o v e r the i m p a c t of size ( M e r c h a n t , 1981), technology (Daft & McIntosh, 1981), environm e n t (Hayes, 1977; Govindarajan, 1 9 8 3 ) and organizational structure ( B r u n s & W a t e r h o u s e ,
1975; Merchant, 1981 ) o n the design of b u d g e t s a n d o t h e r organizational c o n t r o l mechanisms.
G i v e n this r e l e v a n c e of d e v e l o p m e n t s in organization t h e o r y for research o n organizational control, it is n o t e w o r t h y that w h i l e the b r o a d e r field of o r g a n i z a t i o n t h e o r y has, in r e c e n t years, c o m e to v i e w organizational strategy as yet a n o t h e r
a n d p e r h a p s the p r e - e m i n e n t s o u r c e of