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ABSTRACT : Working mainly from the literature of modern organization theory, it was
possible to develop a model of organizational performance for internal subunits. The model
hypothesizes three major contingencies which affect subunit performance : ( 1 ) factors
internal to the subunit ( internal factors ) ; ( 2 ) interrelationships with other subunits ( inter
tions of support for the third , by using the analytical methodology of path analysis. The
final section of the paper explores the implications of the study approach and results for
managerial accounting theory and practice .
The two dimensions concern the rela associated with performance. This model
tive stability and homogeneity of the is presented in Figure 1.
environment faced by subunits. It is sug The model is not intended to suggest
gested that the uncertainty associated that all aspects of each dimension are
with dealing with elements of the environ appropriate for the evaluation of all sub
ment is lowest in Cell I and greatest in units . Rather , only some aspects of each
Cell IV but that no ordering can be placed dimension would seem applicable for dif
on the relationships of the other situa ferent types of subunits . Some of these
tions in such a typology . are outlined in the propositions pre
The nature of the environment faced sented .
by a subunit will determine the relative THE ASSESSMENT MODEL
difficulty such a unit will encounter in
dealing with environmental elements . It Two major contributions to a con
would appear a priori that the more un tingency theory of organizations are pro
certain the environment , the more diffi vided by Thompson [1967 ] and Lawrence
cult will be the tasks of the subunit and and Lorsch [ 1969 ] Although conceptu
,
the greater the extent of environmental ally abstract , Thompson deals more com
influence on their functions . Thus , type pletely with the contingent aspects of
of environment is another contingent performance than Lawrence and Lorsch ;
aspect of performance , leading to con thus, the Thompson study serves as the
tingent methods of assessment . basis for much of the proposed model
The other major contingency aspects of development .
performance evaluation concern the in The essence of any evaluation task can
ternal structure and functions of a sub be captured by two dimensions per
unit . The nature of the tasks performed , formance criteria and the ability to dis
ships and the ability to measure and son diagrams these via a 2 x 2 matrix as
quantify functions are all likely to vary presented in Figure 2 .
with subunit type . Situations posited by Cells I and II
A three-dimensional model of the as theoretically provide little challenge to
sessment function can be constructed on the development of assessment devices
the basis of the three major contingencies and , consequently , encompass most of
FIGURE 1
THE ASSESSMENT MODEL
__ Productivity
Internal <--
<
__ Cost behavior
Supportive relations
<r- Manpower utilization
_-
Work group cohesion
Reliability
Departmental -
Effectiveness
Interdependency <- Cooperation
Flexibility
__ Planning ability
<r
Environmental
_ Share of market
Dealer opinions
<- Environmental stability
Environmental diversity
Homogeneous
honey studies. The three dimensions they
posit with respect to effectiveness repre
uniform and tend to provide empirical units which can be categorized easily as
support for the contingent model pro corresponding to the three dimensions of
posed previously . the Figure 1 model . All of these studies
The studies by Mahoney [1967 ], Ma were in a slightly different context than
honey and Weitzel [1969 ] and Mahoney both the others cited and the research
and Frost [1974 ] represent several dif here.
ferent examinations of the same data . Accounting-oriented studies on effec
Initially , the opinions of managers of tiveness are limited to those by Kinney
different organizational subunits were [1969 ] and Solomons [1965 ]. Other ap
was used as the dependent variable in the ing performance measures of factors out
analyses of the latter two reports. In the side the control of the manager being
first study , the variables were factor- assessed . The approach to assessment
analyzed ; the four highest loading fac was narrow and only analyzed surrogate
tors were interpreted to mesh neatly into measures of management 's ability to
the three dimensions of the model pro cope with the task environment faced .
posed in Figure 1 . Two of the factors , Although Solomons broadly addressed
planning and initiative , appear to be the assessment problem , its applicability
related to dealing with the task en is limited due to the primarily verbal
vironment ; the others, reliability and analysis performed .
productivity , appear to be related to the There is a limited amount of prior re
interdependency and internal factors, search in the area of concern to this
respectively . study ; it is apparent that the proposed
The second report utilized these fac model can satisfactorily explain such
tors in a regression analysis , and the research . The following section outlines
third classified subunits on the basis of some propositions which may be drawn
the dominant technology of the unit prior from the model , followed by the research
to performing a path analysis . In both design and discussion of results.
Both cause-effect relations and standards ing unit is perceived to be two- fold ,
or objectives are expected to be relatively thus defining the important assessment
well -established for these departments . variables. On the one hand , its relation
Output and cost objectives of a produc ships with production departments are
tion subunit can be evaluated readily by critical in that there is a sequential rela
normal accounting techniques, such as tionship between them for products ; the
standard cost variance analysis and rate output of production is an input to
of return . Thus, it is expected that inter
marketing. Evaluation of this interde
nal variables will explain most of the pendence would seem relevant . On the
effective performance herein . However , other hand , its interrelationship with the
given the interrelationships with market
environment to which it transfers this
ing, on the product output side , and product represents its primary task for
R & D, on the technological input side, the firm . Thus , another element in the
interdependency factors are expected to overall marketing assessment is expected
have some explanatory power . to be the evaluation of this relationship.
Proposition 2 : Interdependency vari
ables are the major explanators of per RESEARCH DESIGN AND METHODOLOGY
formance for research and development Manufacturing firms in Ohio fitting
departments . two major characteristics were chosen
Ambiguous desirability standards in for study . To overcome the problem of
research and development departments comparing the responses of individuals
suggest that the use of internal variables from very small with very large firms , an
in the evaluation of their effectiveness arbitrary size limit was selected as a cut
will have limited impact in explaining off rule for firm inclusion . Although dif
their performance. The extent to which ferent indicators of size can be used , such
they achieve budgeted cost levels in a as total assets or sales , number of em
given period gives little insight into their ployees is a common measure in the
outputs or its value to the other subunits literature . 2 Firms employing more than
of the firm which it serves. This implies 500 persons were selected for inclusion
that the nature of the interdependent in this study . The other major character
relationship it possesses with these units , istic of the firms chosen was that each
and the degree to which it fulfills the ex possessed research and development ,
pectations of other units via the coopera
TABLK 1
ANALYSIS OF QUESTIONNAIRE RETURNS
Weighting and combining variables into tion , which cannot be done with ordinary
a renamed combination usually lead to multiple regression .
information loss and difficulty of under
TABLE 3
PRODUCTION DEPARTMENT FACTOR ANALYSIS : HIGHEST LOADING VARIABLES
Factor 1 Factor 2* Factor 3** Factor 4 Factor 5 Factor 6 Factor 7 Factor 8 Factor 9 Factor 10
-
Price F
. 75634
Extent of Extent of Superior / Product
cooperation cooperation subordinate quality- D
Importance Reliability of Budget
of budget personnel capturing of
Delivery Leadership
schedules- D ability
.82582 .72677 relations .86001 .88200 .81004 performance .71081 .66984
.87118 .82198
Customer Confidence Task Skill Product Performance Financial Delivery
service- D expressed cooperation utilization quality- F pressure data - schedules- F
.90141 .89126 . 66858 . 76202 .74707 .66846 capturing .78016
performance
.83109
Creative Information
problem exchange
solutions .84208
.93583
Information Flexibility
exchange .67791
.75786
Flexibility
.89668
TABLE 4
RESEARCH AND DEVELOPMENT DEPARTMENT FACTOR ANALYSIS : HIGHEST LOADING VARIABLES
Factor J * Factor 2* * Factor 3 Factor 4 Factor 5 Factor 6 Factor 7 Factor 8 Factor 9 Factor JO
Extent of Extent of Innovation - D Reliability Skill Budget Product Superior / Leadership Delivery
cooperation cooperation - .58619 of personnel utilization capturing quality- D subordinate ability schedules- D
- .80188 .68762 . 70805 - .82457 performance . 75514 relations - . 74834 .71828
.75287 .89703
Creative Creative
problem problem
solutions solutions
- .91046 .83295
Information Information
exchange exchange
- .88354 .91635
Flexibility Flexibility
- .89618 .81403
TABLE 5
MARKETING DEPARTMENT FACTOR ANALYSIS : HIGHEST LOADING VARIABLES
Factor 1* Factor 2** Factor 3 Factor 4 Factor 5 Factor 6 Factor 7 Factor 8 Factor 9 Factor 10 Factor / /
Extent of Confidence Within- Customer Innovation-D Budget Product Product Price- D Extent of Performance
cooperation expressed group work service- D .72776 capturing price- F quality - D - .83286 cooperation pressure
.62786 .90771 relations .62682 perfor - .94706
.66290 . 74215 .82156
.85158 mance
- . 74570
Task Team
cooperation feeling
.91442 .89592
Productive Creative
conflict problem
settlement solutions
.88451 .86215
Creative Flexibility
problem .80287
solutions
.88118
Information
exchange
.93492
Flexibility
. 90476
judgment is negative ( r 13 = .2795). A the direct ( . 0569) and net effects ( . 0318 )
joint interpretation of this result suggests computed for the coefficient of determi
indicates the continual difficulty of suc duction departments are being buffered
cessful differentiation and integration successfully from environmental influ
[ Lawrence and Lorsch , 1969 ]. ence by sufficient order lead times. Thus,
Limited association with effective per the proposition concerning production
formance was expected from variables department effectiveness is supported
on the environmental dimension . Both strongly by the analysis.
FIGURE 4
PRODUCTION DEPARTMENTS*
1 . Own judgment on
perfoiormance
( internal )
Residual . 5471
A
. 2726
h 12)
2 . Leadership ability of
supervisors
2415 ( internal )
.2474
Y . Effectiveness (0 4 )
V
3 . Marketing managers
judgment on performance
( interdependence )
- .3135
JL
4 . Importance of meeting
future delivery
schedules
( environmental )
Coefficients of Determination
1 2 3 4
* Straight lines refer to paths of influence, in direction of arrow : respective path coefficients are indicated on each .
Curved lines and associated numbers refer to correlations between variables. Size of respective coefficients of determina
tion included in accompanying table.
partments stated that interdependency cients associated with the first variable,
variables would be the main explanators financial data , requires some explanation
of effectiveness. Internal and environ prior to hasty rejection of the propo
mental variables were expected to have sition .
little or no influence. A /- test comparison of answers to
Cursory examination of Figure 5 selected questions was performed on the
FIGURE 5
RESEARCH AND DEVELOPMENT DEPARTMENTS*
. 7106
v f
- . 3017
Y . Effectiveness 2 . Cooperation on joint tasks
with marketing
( interdependence )
3. Importance of improving
product quality
( environmental )
Coefficients of Determination
1 2 3
* Straight lines refer to paths of influence, in direction of arrow ; respective path coefficients are indicated on each .
Curved lines and associated numbers refer to correlations between variables. Size of respective coefficients of determina
tion included in accompanying table.
environmental variable present concerns ity by the provision of feedback from the
innovation ; to some extent it can be inter environment . The correlations ( r 24 =
preted as relating to interdependence . . 2843 ) with the summary judgment
Indications of the importance of the variable and the felt pressure variable
interdependence dimension of the model ( r 34 = . 2655) suggest this interpretation .
in assessing R & D effectiveness are pro
vided by the results. The primary con
titles usually accompany similar executive levels in dif
clusion , however , must be that further ferent firms, it appeared that only controllers and presi
exploration is required on the proposi dents could be reached in each firm to assure some con
sistency across judges . It was felt that there would be a
tion advanced . Given the hypothetical greater chance of obtaining responses from controllers,
explanation of the financial data variable . so they were utilized .
FIGURE 6
MARKETING DEPARTMENTS*
1 . Own judgment on
performance
( internal )
. 3066
.7148 .1079
S
4 . Importance of maintaining
current product quality
( environmental )
.2245
Coefficients of Determination
1 2 3 4 5
* Straight lines refer to paths of influence, in direction of arrow ; respective path coefficients are indicated on each .
Curved lines and associated numbers refer to correlations between variables. Size of respective coefficients of determina
tion included in accompanying table .
The absolute values of the correlation accounting is that of budgeting and its
r 45 ( . 1565) and r 14 ( . 0824) are sub behavioral ramifications . The standard
stantially less than those with the inter research approach has been the explora
dependency variables, indicating that it tion of factors such as the extent of par
has a relatively closer relationship to the ticipation in budget setting and the per
interdependency variables than the formance effects of tight and loose
others . standards . The emphasis of this study
Another important relationship to note has been on more fundamental issues,
is that between the internal summary and these other aspects were intention
variable ( 1 ) and concern with customers ally excluded . What have been explored
future requirements (5) ; r 15 = . 3622 . One are the perceptions of managers with
aspect of this association is the depart respect to the accuracy and importance
mental ability to perform its boundary - of budgets and other financial data
spanning role between the firm and the utilized in performance evaluation . The
environment . It suggests that internal results indicate a general dissatisfaction
task -performance is associated with satis with such measures, tending to reinforce
fying environmental requirements. As the arguments from previous work that
such , it provides supportive argument they are unsatisfactory assessment tools
for the proposition and its rationale as [Argyris, 1953, Lowe and Shaw , 1968 ].
outlined in an earlier section of the paper . In fact in most instances, environmental
Examination of the variables and and interdependency factors were gen
their interrelationships indicates substan erally more important than financial
tive support for the proposition ad data . The implication is that budgets,
vanced concerning marketing depart which are essentially surrogates for the
ment effectiveness. However , environ entire set of factors which influence per
mental variables may contribute more to formance , do not perform the surroga-
the explanation than interdependencies. tion function well . By explicitly recog
Further refinement and empirical work nizing controllable and uncontrollable
are required to clarify the various inter influences [ Horngren , 1972, pp . 162 163 ]
-
by the obvious limitations of the study . velopment and empirical results reported
One of the problem areas of managerial here , it is argued that these factors fall
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