Wim A. Van der Stede
University of Southern California
Chee W. Chow
San Diego State University
Thomas W. Lin
University of Southern California
Abstract: This study empirically examines the joint effects of strategy and performance measures on firm performance. An integral part of this investigation is the relationship among competitive strategy, quality-based manufacturing strategy, and the use of different types of performance measures (financial, quantitative non-financial, and subjective). Focusing on manufacturing, we find that firms which emphasize quality in manufacturing use more of both quantitative non-financial and subjective measures, but without reducing their use of financial measures. We also find that pairing a quality-based manufacturing strategy with extensive use of quantitative non-financial measures is not associated with higher manufacturing performance, but such an association exists when a quality-based strategy is combined with increased use of subjective performance measures. We explore the factors behind these results by investigating some oft-claimed characteristics of financial, quantitative non-financial, and subjective performance measures. The findings indicate that managers see subjective measures as being the least “threatening,” the most controllable, and the least inducive of gamesmanship and short-term managerial orientation. We suggest how these incentive property differences can help to explain the observed performance differences across strategy-measurement pairings.
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