Rajiv D Banker
The University of Texas at Dallas
Surya N Janakiraman
The University of Texas at Dallas
Abstract: Survey data from 176 North American companies are analyzed to empirically examine hypotheses about the choice of performance measures for evaluating plant or service facility managers. A narrow interpretation of responsibility accounting principles suggests that cost based measures be used to evaluate plant managers. However the survey finds that profit or revenue based measures as well as nonfinancial measures are used as widely as cost based measures in evaluating plant managers. Empirical analysis indicates that the need for coordination does not lead to greater use of profit or revenue based measures, but instead this need is accommodated by greater use of nonfinancial measures. Firms using performance measures for strategic management purposes rely more on profit and revenue based measures and nonfinancial measures. Cost based measures are used more by firms pursuing cost leadership strategy and by firms using the performance measurement system for motivating and compensating plant managers.
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