^^i
Dewey
HD28
.M414
ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
.AGENCY THEORY AND CONTROL STRATEGY:
A FIELD STUDY
Morris Mclnnes and Ram
WP 1653-85
T.
S.
Ramakrishnan
April 1985
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
/agency theory AXD control STRATEGY:
A FIELD STUDY
Morris Mclnnes and Ram
WP 1653-85
T.
S.
Ramakrishnan
April 1985
lA.i.T.
UBRAFfJES
SEP 2 4 1985
ABSTRACT
tho
aijency
in
context of
lar^je
corporate
"sing
model
applied
an
derived
relating monitoring, evaluation
several
liypotheses
are
organizations,
and
reward strategies to (l) the level of task uncertainty of responsibility
centers,
(2) the degree of risk and effort tolerance of managers, and (3) the
relative cosL and feasibility of direct monitoring of managerial behavior.
They were tested
The hypotheses are all
based on minimizing agency costs.
using data from a sample of 415 managers in 13 major U.S. companies.
All
results, except for the predictions about
were supported by the empirical
effort tolerance.
As
task uncertainty increases there is less reliance on
evaluating and rewarding performance.
Moreover, budgets are
budgets
in
as price uncertainty increases there is a shift from
modified appropriately;
and as task
monetary to physical units of measurement in the budget,
uncertainty more generally increases the budget period lengthens, and the
budget becomes more adaptable to reflect unanticipated changes as they
Even after adjusting for task uncertainty, greater budget reliance
occur.
used for managers with higher risk tolerance, suggesting a tailoring of
is
Further, managers'
incentive contracts to this personal trait of managers.
risk tolerance is significantly associated with the level of task uncertainty
of
their responsibility centers,
suggesting an effective mechanism for
matching persons to organizational roles.
Finally, even after adjusting for
differences in task uncertainty, significant differences in control strategy
are observed across
functional groupings.
These differences are consistent
greater cost effectiveness of monitoring managerial behavior for
with
research and development and administrative support functions, and conversely
with
greater
cost
effectiveness
of
monitoring outputs for internal
operations, purchasing and sales functions.
AGrNTY THEORY AXD CONTROL STaATEHY:
Since
theory
agency
(197G),
possibility
the
perspectives
Bedford,
systems
contingency
research
Holmstrom,
organizations
Baiman,
1979;
studying
for
(see,
The
1982).
incorporating various theoretical
organization
with
Otley
However.
theory.
examining
to
Anthony, Dearden and
1974;
management accounting
management control systems has been to
of organizations'
(1980)
especially
theory,
reviewed
the
with
accounting
has proceeded within this theme, and ho concludes there is
which
cohesion
theoretical
little
approach
accounting
management
link
1978;
for
fragmentary manner (see, for example, Anthony,
Another
part
as
foundation
In
Lorange and Scott Morton.
1973;
1984).
Jensen and Meckliiig
r.nd
to understanding management control systems has been
rather
a
in
systems
experiential wisdom,
by
Vancil,
1965;
Feltham,
approach
largely
1
theoretical
a
control
and
and
Demski
traditional
guided
providing
of
(1973
Ross
by
advanced rapidly to the point where it offers
has
accounting
management
example,
papers
seminal
the
A FIELD STUDY
the
to
commonality
some
simply
work.
in
perspective and research method.
between
the
paper
this
In
managerial
supported,
in
corporations.
study
with
strategies
control
are
the
normative
control
findings
from
research
and
It
is
in
13 major U.S.
the hypotheses tested in the field
proposed
conducted
of
the
by
with
design,
system
measurement
managers
demonstrated that these are broadly consistent
assertions
studies
415
involving
section
next
the
derived.
management
study
field
In
the degree of uncertainty encountered in
and
The predictions are tested, and largely found to be
task.
a
framework is used to predict relationships
agency
an
in
a
the traditional approach to
behavioral
theory,
contingency framework.
variables
used
in
and
with
The field
the study are then
and this is followed by
described,
summarizes
section
presentation of the results.
a
discusses
and
findings,
the
avenues
A final
further
for
research suggested by the study.
THEORY
a
summary
of the main features of agency
These are then applied to derive the hypotheses which were tested
theory.
in
with
begins
section
This
IIYFOTHE.SES
.AMD
field
the
Finally,
study.
the hypotheses are reconciled with other
literature pertinent to management control system design.
Agency
Theory
principal,
the
residual
effort
the
firm's
to
Both are assumed to seek to
process.
principal cannot observe with certainty the agent's effort;
converts
averse
stated
or,
and
(4)
negative
incurs
present,
effort
effort
process,
stochastic
incurs
manner;
by
effort
the agent is effort
utility
by
expending
again stated differently,
If any of
bearing risk.
(2)
(1)
these conditions is
the principal need only compensate the agent exactly for the
This situation is termed the "first-best solution."
process
is
and
effort can be perfectly observed; similarly,
compensated
exactly.
coatlessly
willingly
and
no
agency problem would exist.
would
the
agents were not effort averse,
If
be
they
if
It
perfectly determinable, then effort can be deduced
would
averse
(3)
negative
the agent is risk averse or,
if
output
a
differently,
pertains
production
in
utility
supplied.
obviously
from
output
into
effort.
risk
production
the supplier of
conditions are necessary to make the model interesting:
Four
firm.
not
owner of the firm, and an agent,
the personal utility they derive from their relationship with the
maximize
the
economic theory of agency models two persons, a
The
:
be
and
willing
to
own
provided
Finally,
on
to
the production
if
agents were not
their
production process, again eliminating the agency problem.
own account the
.
conditions
In
This
so
is
the effort supplied:
compensate
used
by
called
compensates
circumstance,
solution;"
the
agent
that
to
is
effort
both
for
solution which
the
say.
and
In this
risk.
residual accruing to the principal comprises the output of
the
the effort and risk compensation to the agent and monitoring
less
firm,
This equilibrium is
the riskiness of the situation.
for
"second-best
the
efficiently
the
Since the agent is risk averse,
At equilibrium the premium will exactly equal the
risk premium.
a
disutility
agent's
may be measured and
mean level of compensation must exceed the pure market rate for
expected
effort
may be user] to rleduce and
alternatively, output, which is determined by
the basis of an incentive contract.
as
the
effort
of
the agent's level of effort,
simply
than
other
factors
signals
partial
bec.iuse
the agent must inevitably bear some risk.
uncertainty
of
costs
difference between the first-best and second-best solutions
The
agency
the
increase
will
is
uncertainty
appreciated that the agency cost
effort-output
the
of
relationship
the effort and risk aversion of the agent increase.
as
formally demonstrated by means of a simple agency model in .Appendix
Hypotheses
here
agency
The
:
the
in
context
of
model
the overall firm.
organization
is
the
agency
control
costs.
control
rewarding
system,
system
In point of
only
that
1.
delegated responsibility for the work of
managers
of
management
This
outlined in the previous section is applied
portions
defined
the
the
as
and
increases,
it can be
Intuitively,
cost.
called
is
principal.
The manager,
It
then,
is
the agent,
and
proposed that an organization's
is
designed
such
way as to minimize
will
be
fact,
the study does not examine the whole of the
portion
managerial performance.
which
is
Nevertheless,
in
a
concerned with evaluating and
this is an important part of
a
control
system;
important feature (e.g. Drucker.
The
focus
responsibility
or;ranizations
place
revenues,
system
responsibilities
by
The study is concerned with the way
used
and
purposes
for
this through the managers'
With
considered
of managerial
perceptions about the way
measurement
extent
the
operating
matters
during
to
ex-post
best
the
to
alterations
which
it
performance
results
the
evaluation,
and
the units of
in
bud'^^et
during the
degree to which meeting budget
the
the
degree
to
which
having
circumstances which prevailed
the operating period is disregarded in ex-post performance evaluation,
the extent to which formal rewards
for promotion
In
measurement
can be made to the
refers.
possible
control
several aspects are
budgets,
of
of
alternative
as
the time period covered by the budget
budgets.
in
behavior
use
the
intensity
the
which
to
period
in
produced
regard
incorporated
of output budget-based incentive contracts
managerial
of
follows:
as
use
the
monitoring
strategies.
is
their
profit-directed corporate
fiduciary
satisfy
to
modified
is
compares
study
direct
with
and
and
manajjers
which their performance is budgeted, monitored, evaluated and rewarded.
The
and
system
interprets
it
large U.S.
is
assets and equities.
profits,
control;
its most
on-going financial record of the organization's cost levels,
an
accounting
the
is
it
assumed that all of these organizations will have in
accounting
an
maintained
individual
on
Is
context
tlie
is
It
.
accumulating
in
centers:
have
1964).
research
the
(if
authors
some
indeed.
pay increases,
bonuses and prospects
are contingent on meeting budget.
-
an overall sense then,
examined
-
is
a
principal feature of the control system which
the degree to which budgets represent
contracts
in
evaluating
remainder
of
the
paper
and rewarding performance.
we
simply
use
the
term
inflexible and binding
For convenience,
"budget
in
the
reliance" as a
shorthand
convoy
to
the
when it is important to distinguish
except
icln.'i,
specific features within the general concept.
Central
to
steer
and
managerial
of
appropriate
considered
Reduction
from
outcomes
turn
of
over
control
may
of
be
compensating
th(?
ability to
the ability to predict the
order to select those actions which will
in
choose
to
implement
and
circumstances
as
these
actions,
sense
manager's
having
any
in
(2)
are (1)
center away from poor and toward good performance,
discretion
the
(3)
actions
responsibility
the
control
;iiana^erial
of
between good and bad performance.
discriminate
effects
models
iiiosi.
(Otley
and
Berry.
discretion
managerial
uncertainty,
and
to
reduce
-
is
likely to increase a
his or her
perception of
performance of the responsibility center.
the
1980).
measurability of performance, predictability of
-
or
change
managerial actions
the
manager as being more risky since,
interpreted by
a
modification
to
control
the
system,
it
This in
lacking any
render
will
the
effort-reward relationship less specifiable and predictable.
number of features of the task environment of the responsibility center
A
incorporated
are
of
interruptions
which
of
the
in the
its
work
to
the
study, as follows;
responsibility
can be standardized,
the frequency and predictability
center's
work flow,
the degree to
the degree of operating interdependence
the unit's work with other responsibility centers in the organization,
frequency
Higher
and
uncertainty
task
routinized
predictability
and
is
of
and
changes in its operating environment.
interpreted
as
being
associated
with
less
standardized work, higher operating interdependence, and more
rapid and less predictable change in the operating environment.
Finally,
two
attributes
tolerance and effort tolerance.
of the mangers are considered as follows:
risk
The
question addressed is how the conti'o] system can be designed
centr.jl
Clearly, altering the degree of budget reliance could
to
redui r .i:.^oncy cost.
be
means of doing this.
A budget represents a
likelihood of
uncertainty
increases,
appropriate
standard
in
the
Hence,
we
should
diminish.
which
centers
responsibility
vein,
the
light
circumstances
must
surely
less budget reliance in the case of
greater
task uncertainty.
In a
similar
should expect less budget reliance in the case of managers who have
we
relatively
These propositions form the first
low risk and effort tolerances.
hypothesis of the study:
K
expected
to be associated with:
budget reliance
is
responsibility centers with greater task uncertainty;
managers with lower risk and effort tolerances.
Lower
;
(a)
(b)
aspect of the control system nested within this hypothesis concerns
An
form
the
measurement
of
information
the
financial
budget,
in
measures.
particular
Additional
Since we assume the accounting system usually reports performance
performance
likely
to
input
and
:
obtaining
terms,
require
will
and
reporting
physical
measures
of
additional design effort and cost; this is more
worthwhile in circumstances where a responsibility center's
be
output
prices
are
changing
relatively
rapidly
and
This was adopted as the second hypothesis:
unpredictably.
H^
and
in
should only be used when this clarifies the manager's level of
financial
in
incorporated
physical
between
distinguishing
effort.
frequency and lower predictability of change in
and output prices are expected to be associated with a
greater propensity to use physical, instead of financial,
measurements in the budget.
Greater
input
Consider
are
now the issue of assigning managers to roles, where the roles
characterized
i.iesirable,
As
pre-set goal continuing to be an
a
actual
of
expect
face
pre-set performance goal.
from
by
an
different
levels of task uncertainty.
It would be
agency perspective, for managers with relatively hiyh
,
for risk and orrurt to be assignod to
toh^ranct-;
uncertainty,
task
across
obedient
nor
roles;
vi.'l
y
high
are they necessarily totally
.Vevertheless
organization's dictates in these matters.
the
to
with rolat.i
Clearly, managers are not in practice
versa.
vici'
subst itu tab! e
perft!ctly
it
and
rolt.-a
reasonable to assume that some degree of matching will occur, partly
is
through
self-selection
partly
through
This prediction is the basis of the
roles by managers.
of
and
mechanisms
assignment
organization's
the
third hypothesis:
greater risk and effort tolerances are
Managers
with
expected to be associated with responsibility centers with
greater task uncertainty.
11^:
^
The
to
and second hypotheses suggest a tailoring of the control system
first
nature
the
of
responsibility
exclusive.
Thus,
an
issue
Suppose
holds,
so
that
h\
with
associated
and
positive
relationship
one
of
and
hand,
H^'s
measure
of
'
of course mutually
concerning
the
causality
and
are
in
H
tolerances are positively
effort
Then,
in
analyzing
negatively
even if budget
H
associated,
an observed
between managers' risk and effort tolerances on the
between
budget
One
way
of
controlling
for
this
is
to
test the
the risk and effort tolerances of the managers and a
reliance
leads to an addendum to H,
H,
not
budget reliance on the other may be spuriously low because
effect.
relationship
risk
uncertainty
reliance
task
arises
uncertainty.
task
are
strategies
These
centers.
to the task uncertainty of
managers
matching
proposes
hypothesis
third
center and its manager, whereas the
responsibility
a
after
adjusting for task uncertainty.
This
as follows:
differences in the task
controlling
for
Even
after
uncertainty of responsibility centers, less budget reliance
expected to be associated with managers with lower risk
is
and effort tolerances.
third
A
monitor
effort
of
feasibility
centers
compared
with
grouped
into
of
conditions
likely
dispersion
translates
which
likely
to
outputs.
The
sufficiently
operations,
rather
R&D
AS.
of
a
of
effort as
as
research
follows:
and
including such activities
including
and two current
manufacturing
and
including purchasing and selling.
most
efficient
means
of control are
the specificity of the production function
outputs.
Boundary spanning activities are
much more geographically dispersed mode than
of the other functions:
resulting
'in
hence, monitoring of effort is not
greater reliance on monitoring of
production functions for internal operations are likely to
specific
monitoring
physical
classification
monitoring
to
allow
effort
to
be
when output is measured in physical units.
especially
and
to explore this theme we
across these functions, namely geographic
into
feasible,
be
to
less than the
is
The responsibility centers were
support (AS)
the
and
conducted in
be
activities
likely
affecting
effort
direct
operations,
internal
activities
of
Direct
difficult in practice
the provision of information;
and
systematically
vary
to
is
functional
a
groupings
distribution, and boundary spanning,
Two
It
Thus,
contracts.
administrative
personnel
costs is simply to
proxy for likely variations in the relative
a
functional
four
functions,
operating
as
output-based
(R&D):
finance,
using
test
cost-effectiveness
and
development
indirect
an
to
responsibility
be
agency
attractive when its cost
be
measure either of these costs directly.
resorted
the
reducing
perhaps in addition to, output.
or
of.
will
for
premium costs of output-based contracts.
risk
as
strategy
instead
effort.
monitoring
to
feasible
than
output
financial
on the other hand,
is
deduced from output,
Hence,
for internal
more likely than monitoring effort, and
measures of output are also more likely.
are both likely to be concentrated in one.
..
perhaps
or
production
function
specific.
Thus,
which
in
is
neither case is the
likely to be more feasible
These predictions were the
two functions.
these
in
into effertive output very
effort
translates
direct monitoring of effort
effective
cost
and
geographic locations; moreover,
few,
a
subject of the fourth hypothesis:
H
Greater budget reliance is expected to be associated with
purchasing and sales functions than
operations,
internal
with research and development and administrative support
functions
•
The
relative
and
inonitoring
cost
believe
controlled
for
H
However,
if
holds
H.,
across
be
the
functions.
direct
hypothesized
systematic differences
is
intuitive reason to
Therefore, task uncertainty should be
case.
testing the reason for H
in
There
the
versus
4
A supplementary hypothesis
Even after controlling for differences in task uncertainty,
greater budget reliance is expected to be associated with
purchasing and sales functions than
operations.
internal
with research and development and administrative support
functions
':
The
Figure
research
framework and the hypotheses of the study are summarized
1.
INSERT FIGURE
Reconciliation
with
contracts
incentive
was therefore adopted, as follows:
to K
in
could
this
based on the argument of the feasibility
result if there happened to be
could
uncertainty
task
is
output-based
of
effort.
of
relationship
in
hypothesis
preceding
various
approach
with Other Literature
other
themes
in
to management control,
1
:
ABOUT HERE
The hypotheses are not inconsistent
the literature,
for instance the normative
organizational psychology, and contingency
theory applied to management accounting.
Vnncil
in
congruence
such
fairness,
measurement
is
progress
Vancil
says,
toward
accountable
performance
possible,
(page
fairness
measures
the
A similar theme
based on the evidence that holding
Weick (1983) concludes
stressors
and
consequences
dysfunctional
wellbeing.
should
with
the
advice.
given controllable features of
be
a
a
for
review of
".4s
much as
situation."
is
not achieved solely by filtering out of performance
effects
of stochastic disturbances arising in the operatin.g
environment.
For
environment,
which
secondly,
may
one
is
stress,
be
managerial
work.
in
the
this
thing,
to
point,
a
could
cause inattentiveness to the
likely to be conducive to goal congruence.
hardly
different
tolerant
is
This stress on fairness seems to
Agency theory, of course, does not contradict these points.
However,
fairness
manager] must believe that the
"...[a
with
stress,
stress
on
people
relatively
goals.
for things over which they perceive themselves to have
personal
and
365).
managers
organization's
emotions toward the organization.
raises
literature
the
the
all the factors he can control and excludes those
negative
influence
simultaneously be maximizing
will
they
in organizational psychology,
found
managers act
if
terms of sustaining the directive power of the measures,
in
avoiding
no
in
measures,
encompasses
justified
people
And
congruence means that
Goa]
which he has no control" (page 77).
and
to guiiie the design of
maximize their center's performance as reflected by
to
collective
and
Regarding
be
as
system's
individual
over
and fHirness.
way
a
control
the
criteria
mnin
t"wo
measui-es to apply to an organization's responsibility centers,
performance
goal
identifies
(1373)
from
may
be constructive
(Libby,
1983);
other people precisely because they are
of the stressful circumstances frequently encountered
theory's
.Agency
notion
of
reconciliation
efficient compensation.
10
with the norm of
In an efficient
.
equilibrium
be compensated not only for effort,
will
disutility,
the
for
manager
a
incurred
stress.
including:
hut also
with
coping
from
uncertainty
Otley
approach
contingency
based
system
accounting
circumstances
...
depend
between
product-market
competition
(Hopwood,
Waterhouse,
degree
inform
companies
in
any
perceived
by
part
the
deciding what are
have
studies
and
the
1973; Mercliant.
controls
will
for,
be
reflected
approximating
in
(Bruns and
and
The present study
variables.
all these
of
style
complexity
task
1984).
nature
leadership
1973),
and
identified
The nature
the measures of task
perfect
competition,
is
for
relevant experience
high since there is little
judgment.
The
managerial
tasks
in
most large
some intermediate position between these extremes.
in
event,
is
very little uncertainty, whereas in an entrepreneurial
is
managerial
are
1972,
1984),
1981,
in all
the organization
in which
organization size and structure
condition
a
uncertainty
situation
to
In
there
example,
or
competition
of
uncertainty.
1978),
and Macintosh.
(Daft
incorporates,
either
(Khandwalla,
Merchant,
1975;
technology
and
Otley,
1974;
organizations
all
features
system
appropriate
appropriate accounting system
Empirical
control
relationships
universally
of course,
One problem,
413).
contingencies.
pertinent
the
an
of
circumstances
specific
the
to
the
of
He defines this to be
no
is
et^ually
features
particular
(page
itself"
finds
applies
which
upon
there
that
synthesis
and
accounting.
management
to
review
excellent
an
premise
"...the
on
will
provides
(:9.j0)
the
competitive
situation
sliould
be
reflected
But
in the
environmental uncertainty expressed by the managers and measured
research
instruments.
Hopwood
of the concept of budget reliance,
11
's
leadership style is included as
and the nature of the task and the
technology
work
included
are
uncertainty.
task
of
size is controlled for by having in the sample only
organization
Finally,
measures
the
in
managers from very large companies.
studies
Several
as
functional
Gordon
uncertainty.
of
and
considered
information
higher
found
(1983)
most
dysfunctional
and
low,
Narayanan
on
this study) to
cases of high,
in
found
(1984)
in
reliance
that
type
the
of
valuable by managers varies with differences
perceived environmental uncertainty. Finally, Govindarajan (1984) found
in
greater
that
use
subjective
of
rather
formula-based methods for
than
managerial bonuses led to higher levels of self -rated performance
awarding
in
cases
in
Hirst
measures (c.f. budget reliance
performance
ijuanti tative
be
variable.
contingent
the
dealt with uncertainty
like the present study,
have.
conditions of high uncertainty, and vice versa.
Hayes
contributing
conclusion
managerial
to
different
quite
Wliile
propositions
tested
(1977)
in
monitoring
that
about
effectiveness
emphasis
differences
across
from
the
Ln the sources
groupings.
functional
present
study,
Hayes'
and measurement methods should be tailored to
distinctive characteristics of each function agrees with the spirit of
the
our last two hypotheses.
.A
paper
recent
agency
theory
presents
to
the
,
present
the
did
preference,
of
control
as
a
function of task
and cost of measuring outcomes;
evidence consistent with her predictions.
study,
personal
examine,
using
forms
uncertainty
outcome
e.iipirical
framework
(1983),
predicting
in
programmabili ty
Eisenhardt (1985) relates organization theory and
by
however,
traits
Eisenhardt
of managers.
did
not
as
predictors
consider
One previous study,
under experimental conditions,
these
In
of
she
contrast
in
her
by Chow
skill level and risk
the
choice
between
performance-based
themselves
performance-based
prefer
a
effect
from
latter
result
of
aversion
risk
Subjects believing
schemes.
higher levels uf skill were found, as
possess
to
compensation
fixed
and
found.
not
was
could be explained by
a
to
but the predicted moderating
scheme;
reward
expei.-ted,
lack of
It
a
conceivable that the
is
sense of risk on the part
since the contingent payments in Chow's experiment were both
subjects.
small and notional regardless of whether the task goal was met.
THE RESEARCH
section
this
In
discussion
The
main features of the field study are presented.
the
describes how the data were collected, and then how
first
each of the variables included in the analysis was measured.
Study
Field
.A
:
questionnaire was sent to 605 managers in thirteen major
Initial
companies.
U.S.
coordinated
through
senior
a
was
select
representative
These
Sample
management.
corporate
Companies were asked to
sample of their middle-level operating managers.
operations,
domestic
only
variety
Functional
management.
of
were to be carrying significant functional responsibility,
managers
covering
member
done by each company's management.
selection
a
letter to
a
and administration of the research was subsequently
executive,
chief
the
contact with companies was made by
in
at
the
a
sample,
below
just
level
general
representative of the
functional mix in the company, was part of the sample design.
The
letter
questionnaire
signed
introduced
envelope
by
the
one
study
was
of
and
sent
to
each
manager accompanied by
the company's corporate executives.
encouraged
participation.
a
cover
The letter
A pre-addressed
was included for completed questionnaires to be returned directly
research
to
the
by
respondent.
team.
Responses could be identified by company, but not
This was considered advisable to minimize bias which might
13
.
arise
managers were to believe their responses could be inspected
the
if
by ttieir corporate mnnagiTnents
Completed
rate
of
questionnaires
received from 415 managers
(a
response
The respondents averaged 16 years of experience with their
69%).
companies,
wore
and
years
ten
their
in
present
jobs
and
jobs similar in
responsibility and content to their present jobs.
More
data
the
for
clarity
using
of
reported
study
for
collected
were
in
expression
of
by the questionnaire than were used solely
this paper.
and
The questionnaire was pre-tested
for the time required for its completion
sample of 20 managers similar in background, experience and level
a
responsibility
average
taken
time
those
to
in
intended
as the subjects of the study.
The
pre-testing to complete the questionnaire was just
under 30 minutes.
Most
questions
the
of
asked
for a response on a seven-point scale,
with
both
some
cases respondents were asked to answer by entering
ends
selecting
from
points
end
and
the scale being anchored by descriptive captions.
of
salient intervening points.
at
a
Managers
in
ir.
a box,
Research
Finally, a few questions
brief verbal type of response.
area of decision making under conditions of
the
is
well
established; Schoemaker (1980) provides an excellent review
this
work
and
risk
of
number
numerical scale which was descriptively anchored at the
a
required a "yes-no" or
:
a
In
usually
which
render
methodology.
assessed by means of
subjects are asked
them
methodology
Libby
its
indifferent
is
a
Risk preference in this research is
series of carefully described lotteries for
to express the certainty equivalents which would
to
the
respective
lotteries.
However,
this
laborious, and runs a risk of lacking contextual validity.
and Fishburn (1977) note that measures of risk preference tend to be
14
seasitive
the
present
two
of
and
their
study
personal qualities as managers,
their
terminology
Mintzberg's
of
was
anchored
by
one
step
a
degree
at
and
risk,
responses
another
=
(r
a
preference
and
consultation with others.
end
as
pay-off
having
style
was
for
bold,
accompanied by a high
The second question
preference for "low risk, and a
and
at the other end by,
"high
but with an appreciable chance of loss."
The
with
one
these
questions
0.r.02:
p
0.01)
<
a
certainty,"
high
with
reversed,
scales
their
with
one
high
to
having
as
to problem solving,
approach
time
at
a
decision-making
The
the term "adaptive," described as preferring a cautious,
pay-off
moderate
management decisions.
relative disregard for risk, while the other end
a
discussion
of
anchored
was
and
actions
dramatic
on
their decision-making style
One end of the scale was anchored by the
described
"entrepreneurial,"
term
work
(1973)
for the first question.
borrowed
making
when
tendency
risk-reward
decided in
subjects to provide a self-rating of
to ask the
simiJly
it was
For this reason,
both situation and task.
to
significantly
were
in
correlated
the expected direction.
Both were used,
proxies for the managers'
as
tolerance for
risk.
Two
sets
referring
questions
of
to hours spent at work,
during
work hours.
effort
acceptable
much
effort,
expended,
attributed
incremental
disutility
were used to assess effort tolerance, one set
and the other to the intensity of effort
Reference was made to the notion of
in
the organization.
a
minimum level of
Respondents were asked first how
hours
and
intensity, above this minimum level they usually
then
the
level
and
to
personal
this incremental effort.
effort
(say
of
b).
level
.411
(say
cost,
or
disutility,
they
The first response measured their
and the second measured its marginal
a),
else equal,
15
the marginal disutility of effort
.
will
with
liicrcaso
where
tV'{a)
aversion.
The
V'(a)
Hence,
estimates
two
effort,
were
expected
effort aversion parameter:
individual's
an
is
increasing with
t
increases
is the
t
b =
individual's effort
with (b-a), both of which were measured.
one based on hours and the other on intensity of
of t.
correlated
direction.
and
a,
i.e.
with
were
Both
another
one
(r
with
used,
=
0.626;
their
p
<
0.01)
in the
scales reversed, as
measures of the managers' effort tolerance.
Environment
Task
namely
study,
the
sources of task uncertainty were considered in
Three
:
work
the
flow
responsibility
the
of
center,
the
interdependence
of the responsibility center's work with the work of other
organizational
units,
environment.
These
and
responsibility
the
sources
three
consistent
roughly
are
operating
center's
with
the
framework
used by Hayes (1977) in his study, except that he considered the
operating
environment
whereas
firm,
we
include
to
consider
only
operating
the
environment external to the
the
environment
include
to
the
corporate as well as the external environment.
questions
The
production
with
the
about
technology.
work
(1967) concept of
The first two dealt
frequency and predictability of interruptions to the normal work
the
third
with
understood
and
could
be
work
on Perrow's
questions were used.
Three
and
flow,
based
were
interdependence
interdependence,
unit's
degree
second
with
and
of
the
degree
the
reduced
to a standard routine.
followed
Thompson's
included
two
dependence
degree
of
to which the basic work was well
(1967)
questions,
notion
Measurement of
of
reciprocal
the first dealing with
on other units of the organization,
dependence
question
16
of
otiier
units
the
and the
on the unit in
Aspects
the volatility and predictability of both
included
to
responsibility
the
change
measured by the questionnaire
environment
operating
the
of
relevant
in
legislative
such as "...technical and
prices,
than
and predictability of
dynamism
the
emanating
changes
policy
competitor
and
and
other
items
factors.
organization,
center,
and output prices
inpul
elsewhere
from
in
the
The intent and wording of these
actions."
questions were selected and modified from questions used originally by
six
Khandwalla
(197.T,
eleven
All
potential
manager
terms
of
the
The
relationship.
Table
in
1.
interpretation
the
variables
to
have
the
placing demands on the
uncertainty,
task
to
believed
are
responsibility center and increasing the sense of risk in
diminishing
of
shown
measured
the
contribute
to
of
in his study.
1972)
clarity
the
intercorrelations
effort-outcome-reward
the
of
between
the
eleven variables are
However,
Some of these are very significant.
to avoid
problems which accompany the reduction of variables by
analysis, and since there are in any case only eleven variables,
factor
it
was decided to use all of them in the data analysis.
INSERT TABLE
Respondents
their
manufacturing,
support;
a
description
functional
centers
follows:
as
ABOUT HERE
were also asked to provide
responsibility
provided,
1
by
classification of the work of
function.
exploration,
distribution,
a
A
number
of choices were
research and development, production,
purchasing,
marketing,
administrative
and
request for
ninth choice,
"other," was also provided, with
of the work.
The responsibility centers were assigned to four
classifications.
as
follows:
17
R&D,
a
a
including exploration and
research
and
interna]
operations,
development:
including
AS,
responses
including purchasing and marketing.
The
were assigned to these four categories basfnl on the
"other"
in
support;
including production, manufacturing and distribution;
boundary spanning operations,
and
administrative
only
descriptions given by the respondents.
Budget
Reliance:
number
A
evaluation
performance
of aspects of the budget and
reward
and
process
were
its use in the
measured
by
the
questionnaire.
question
One
respondents
asked
to
indicate
which of the following
measures
are featured in their budgets and performance evaluation;
physical
units
in
units
monetary
costs,
revenues, profits,
return on capital.
They
The number of
used as an indicator of measurement intensity, and the relative
was
ticks
-
to tick as many categories as were appropriate.
asked
were
outputs, outputs in relation to inputs, and (b)
inputs,
-
in
(a)
among measures was used in the analysis of the relative reliance
frequency
on physical as opposed to financial measures.
Two
aspects
of
the budget were measured:
the time period covered by
the
budget, and whether any alterations to the budget could be made during
the
progress of the operating period covered by the budget.
periods
adaptivity
greater
and
the
of
Longer budget
budget to reflect unanticipated
conditions were considered possible responses to higher task uncertainty.
Two
direct
in
performance
of
budget
asked
having
for
met
importance
questions
,
and
having
'
s
(1973) notions
and profit conscious evaluative styles.
assessment
budget
of
These were based on Kopwood
evaluation.
constrained
an
were used to assess the dominance of the budget
of
the
The first
the importance in performance evaluation of
second
produced
asked
the
IS
best
for
an
results
assessment
of
the
possible
in
the
.
circumst.mces
response
question,
first
the
to
hindsight,
with
which,
were known to havo prevailed.
The
and the reverse of the response -o the
question, were used as indicators of budget dominance in evaluation
second
of pei-f ormance
indirect method was used to assess the importance of mef?ting budget
An
in
of
receiving
bonus,
and
likelihood
greater
met;
not
(3)
meet
-
higher pay,
under
four
(2)
the same as
in
(1),
except that budget was
but having met budget;
(4)
the same as in (3).
except
The difference between the second and third
having met budget less having worked hard but having failed to
but
budget)
was
contingency.
reward
promotion
of
-
probabilities (having worked at the minimum acceptable level of
subjective
effort
rewards
having worked hard and imaginatively at their
(1)
budget was not met.
the
of
having worked at only the minimum level of effort acceptable
the organization,
that
prospects
enhanced
and having met budget;
jobs
amounts
incremental
as follows:
conditions,
to
Respondents were asked to provide an assessment of the
approach.
(1903)
The method was suggested by Hirst's
allocation of formal rewards.
the
It
as a measure of the strength of the budget/reward
used
was
so
correlated
highly
across the three different
elements that it was decided simply to use the numerical average of
the three as a single measure.
intercorrelations
The
shown
in
Table
2.
the six aspects of budget reliance are
between
The coefficients are not especially large, and all six
were used in testing the hypotheses
INSERT TABLE
2
19
ABOUT HERE
RESULTS
correlations
The
uncertainty
n^(a)
aspects of budget reliance and of task
the
centers are reported in Table
responsibility
the
of
3.
For
we would expect to observe only negative correlations in
hold.
to
between
i.
table.
this
and
none
half
negative
the
significantly
aspect
budget
which
reliance
budget
volatility
strongly
reason
high
as
for
price
physical
<
(p
0.10).
All ten
to the strength of the budget/reward contingency,
most
indication
direct
of budget reliance,
are
The importance in ex-post performance
negative.
with
reliance
are
negative
in
this,
uncertainty.
The aspects of task
operating
dynamism
and
unpredictability.
input
and
output
of
correlations
with
budget
The
prices also show
reliance,
but
not as
the case of operating dynamism and unpredictability.
as
volatility
rather
task
the most significantly negative correlations with
show
unpredictability
and
significantly
significant
are
More than
having met budget is the next most significantly correlated
of
uncertainty
the
(p<0.01)
evaluation
of
coefficients
pertaining
perhaps
is
nine is significantly different from zero.
these
of
coefficients
which
fact, all but nine of the 66 coefficients are negative,
In
than
we
shall see
and
in
a moment,
unpredictability
is
there
that in conditions of
is a
tendency to use
financial measurements in the budget,
the effects of price changes.
INSERT TABLE
3
20
ABOUT HERE
The
filtering out
.
linadjusted coi-relaLious between the aspects of budget reliance and
The
H
risk
managers'
of
(b)
case
the
supported
strongly
is
effort
of
effort tolerance are shown in panel A of Table
and
in
case of risk tolerance; but not in
the
For risk tolerance eleven of
tolerance.
1.
tlie
twelve
coefficients are positive, and most are highly significant.
INSERT TABLE
summary
In
then,
with
evidence,
H
is
exception
the
4
ABOUT HERE
convincingly
supported
by
empirical
the
the predicted effects between effort
that
tolerance and budget reliance are not found.
H^
,
return
shall
We
the
t-statistics
use
of
'
in
a
moment.
to
it
is
Proceeding first to examine
presented in Table
5.
This shows
for comparisons of the mean values of the frequencies of
physical and financial measures between the portions of the sample
which
have
input
and
measures
under
H
pertaining
evidence
the
to
low
volatility and unpredictability of
output prices respectively.
The results Indicate that physical
relatively
conditions
output
prices,
however,
prices.
and
likely
more
are
high
of
to
higher
result
The
weaker
and
in
the
be used in budgets than financial measures
volatility and unpredictability of input and
is
especially strong in the case of output
case
of
input
prices,
the evidence supports accepting H^
INSERT TABLE
5
21
ABOUT HERE
or costs;
overall,
Table
shows
6
risk
and
iiiicerta iaty
coef f ic len
these
:.s
coefficients between aspects of task
correlation
the
effort
and
"or
tolt-j'ance.
H^
should all he ijositive.
The evidence
tolerance but
cast?
to be
is
supported,
supportive in
the;
case
of
risk
the
case
of
risk tolerance 15 of the 20 coefficients are in the expected
direction;
Overall
tiie
ir.
of these 15 are significant
12
coefficients
the
jiot
with
evidence
the
llien,
unexpected
the
(p < 0.10),
sign
supports
of (;ffort
is
accepting
tolerance.
whereas only one of
significant
H^
In
(p
<
0.10).
in the case of risk
o
tolerance, but not in the case of effort tolerance.
INSERT TABLE
Returning
matching
H,
'
tiie
understate
tolerance
and
uncertainty
direct
impact
for
adj'usted
these
two
are
tolerance.
some
degree
of
of
the
risk tolerance, as reported in panel \ of
relationship.
uncertainty
budget
reliance
effects
positively
are
budget
on
on them of
correlated,
negatively correlated.
are
tolerance
risk
This is so because risk
reliance,
task uncertainty.
while
To see the
both have to be
The residuals of
variables, obtained from two multiple regressions using in each
uncertainty
results
suggests
task uncertainty of roles on the basis of risk
direct
the
task
and
result
the unadjusted correlation coefficients between aspects
Hence,
4,
ABOUT HERE
last
the
,
budget reliance and managers'
Table
case
to
of managers to
tolerance.
of
now
6
shown
The
the
as
in
explanatory
panel
adjusted
B
of
variable, were correlated, and the
Table
coefficients
4.
This supports H
'
for risk
all show a stronger relationship
unadjusted
the
than
coefficients; moreover,
direction and almost all are significant,
view
In
reliance
the
of
lack
effort
and
Taking
up
H
frequency
relative
tolei-ance,
a
of
use
groupings.
"expected"
frequency
equal
all groupings.
for
"expected"
using
comparison
of
therefore
a
H
'
of
established in testing
in the case of effort
types
H
(h).
it was not
tolerance.
7
presents the
budget measure across the four
of
contingency
A
the expected
0.10).
first step in the analysis Table
as
functional
•:
in
any systematic relationship Ijetween budget
of
considered worthwhile to test
(p
they are all
analysis
was
undertaken.
The
use of each measure was computed as if this were
of
The actual frequency was then compared with the
chi-squared
test
significance.
of
The
reported
the frequency of use of measures in one functional group is
relative
to
the frequency of use in the other three functional
groups.
INSERT TABLE
The
discussion,
be
on
the
basis
significantly
and
the
ABOUT HERE
functions, as was conjectured earlier in the
are much more likely than the other three functional groupings
measured
to
operations
internal
7
in physical
of
more
R&D
physical
output.
frequently
function
is
R&D is relatively frequently measured
units.
The boundary spanning functions are
measured
significantly
financial terms.
23
in
terms of revenues and profit.
less
frequently
measured
in
reported
aro
budget
three.
aspects;
of
functional
'.he
sliows
significantly lower budget reliance
in
all six
also shows lower budget reliance, albeit with somewhat weaker
AS
than
higher
the
in
case
of R&D.
Conversely,
internal operations
reliance, as do the boundary spanning functions, even
budget
with somewhat weaker significance.
though
groupings for each aspect of
grouping is compared in turn with the sum of the
Each
K&D
significance
show
Mach
for
reliance.
other
comparisons of the mean values
A of Table 8 t-statistics for
panel
Tn
These results support accepting
"4-
Table
shows t-statistics for comparisons of task uncertainty across
9
functions.
the
uncertainty
than
descending
order
It
any
of
seen
be
the
that
other
R&D
faces
functions.
This
much greater task
is
followed in
task uncertainty by the boundary spanning functions,
of
operations,
internal
can
and
finally
by
AS
which
seems
to be faced by a
relatively certain task environment.
INSERT TABLES
From
is
the
supporting
H
,
we know that
associated with higher task uncertainty.
whether
this,
lower budget reliance
The question therefore arises
differences in budget reliance observed across the functional
the
groupings
caused
are
simply by differences in task uncertainty.
To test
budget reliance measures were regressed on uncertainty, and the
the
standardized
The
results
AND 9 ABOUT HERE
8
residuals
were used as adjusted measures of budget reliance.
t-statistics comparing the mean values of the adjusted budget reliance
measures
across
the groupings are reported in panel B of Table 8.
24
It
can
.
be
sii'ni f
of
(iif f erences
leant
budget
other
groups
differences
for
the
in
quite
is
are
the functional gi'oupinys in the iJegree of
more
so
strength
of
dramatic,
differentiated.
clearly
in
the case
operations.
the case of internal
in
not
uncertainty.
task
uncertainty there remain
task
for
significantly less budget reliance
is
considerably
and
two
groups
adjusting
across
There
reliance.
'R&D
after
even
that
seen
The
However,
the
the budget/reward contingency across the
and is considerably altered by the adjustment
In
summary,
H
is
'
4
supported by the empirical
evidence
DISCUSSION
Considering
of
the
to
agency
reduce
and
practice.
support
of
the overall
A
number
means
of
way
a
doing this were
of
the evidence was consistent with all of tht^m being used
as task uncertainty increases,
Secondly,
managers'
to
with
managerial
higher
roles
budgets become more
which
the
degree
of
risk
tolerance.
risk
tolerance
are
budget
reliance is modified in
Thirdly,
job matching results in
finding
characterized
by
their
ways
higher
into
levels
of
those
task
Finally, higher reliance on direct monitoring of effort, and
uncertainty.
correspondingly
less
observed
in those
feasible
and
activities
costs.
First,
performance.
managers
strong
and less reliance is placed on them in evaluating and rewarding
adaptable,
relation
remarkably
we consider that the
organizations design their control systems in such
that
hypothesized,
in
provides
presented
proposition
of making reliable empirical measurements
of phenomena studied in this research,
kinds
evidence
as
difficulty
the
cost
reliance
on
budget-based
incentive
circumstances in which direct monitoring
effective,
namely
contracts,
is
is
likely to be
high geographical concentration of
and low specificity of the production function which translates
effort into effective output.
25
.
hypothes
relationships
i;:ed
aversion.
This
aversion,
pursuing
effort
suggests
being
level
successful
reasonable
tolerance.
have
may
we
that
studied.
careers
suppose
to
or
poor
conversely effort
measures
of effort
that
managers
the
All
with
major
such
persons
U.S.
in the sample are
corporations.
It might be
are unlikely to be especially
averse; besides, when the need arises their sense of responsibility
likely to lead them to supply whatever effort is necessary to get a job
case
done.
In
the
manager
to
express
risk tolerance,
of
a
approaching
decisions,
assignments
and
it
effort
was
that effort aversion does not play a sij^nificant role at the
or
management
is
variable for which the evidence did not strongly support the
only
The
preference
and
for
for
this
in the design of
it
caution,
be
to
hence,
it
being
is
or
taken
incentive contracts.
probably less acceptable to express
is
probably acceptable for
is
risk
aversion,
a
in
into account in job
On the other hand,
preference for avoiding work;
a
perhaps not surprising that we do not observe effort aversion
allowed
strategies
for
in
the
design
hypotheses
of
the
study were based on agency theory, but it was
of
control
and
in
job
assignments
The
demonstrated
on
management
that
of
that
it
risk
however,
aversion
is
performance:
it
control
system
design.
One advantage of agency theory is
provides a directional prediction,
minimization
hand,
they are consistent with other theoretical perspectives
is
that
of
in
not
and
minimization
there
agency
is
no
cost,
following from the assumptions
agency costs.
of
One disadvantage,
obvious effectiveness correlate with the
such
as
managerial
or
this sense, agency theory is quite limited.
really
clear
provide any better predictions
in
that
On the other
other theoretical perspectives can
this regard.
26
organizational
1
i.ni
tat ions
There may,
.
used
means
the
respond
questions
interpreted
findings
may
not
However,
research.
variety
of
results
have
generalizable
given
devising
the
we feel that the
sample,
the
in
However,
the
findings
may
not
be
Our judgment on this is that
likely to apply to lower levels of management; however,
effectively
cope
to
implementing
and
Moreover,
.
strong claim to being representative of large
organizations.
are
need
the
have
not
major companies in a wide
13
to other levels of management.
findings
the
from
included
reasonably
corporate
I.'.S.
may
beyond the companies included in the
managers
were
industries
a
the intended manner
precisely
since
choosing whether to
respondents
responses,
generalizable
be
in
and despite careful pre-testing and the use
across
in
themselves
managers
by
checks
ai-islng from
sample of mana;jers in each company, and from
a
the questionnaire;
to
consistency
of
select
to
be bias in the data,
for instance.
exercised
selection
self
caveats must be acknowledged in respect to the study's
usual
the
All
with
environmental uncertainty in
strategies,
business
the
findings
are less
likely to hold at general management levels.
For
example,
functions
would
determining
of
the
were,
and
the
the
observed
considerably
closer
in
control
strategies
examination,
with
a
across
view to
characteristics of control systems most suitable for each
paragraph,
control
differences
bear
functions.
the
previous
in
of exciting avenues for further research suggest themselves.
number
A
Another
is
interesting
question,
as suggested in the
whether the reduction of agency costs is observed
strategies
used
at
higher levels of management.
If
it
an
intriguing question would follow, concerning the point at which,
how,
goal congruence is established between managers and the interests
of shareholders.
27
Appendix
the output of a production pi-ocess be x.
Let
X = Q(a)
Where
Q(a)
Suppose
function
expected
the
principal
r
value
and
where
averse,
effort
aversion
an
r
)
-kVar
specific
also
the effort supplied
)
.
risk neutral.
be
where Exp and Var refer to
manager,
The constant k is a
where
agents
all
a
is tV{a).
associated with output
=
>_
t
Here
>_
.
t
the same Q and V functions,
have
In
F
i.e.
but differ
with regard to k and
bQ' (a)
He
Lot the reward
F + bx
-
bO(a)
-
tV
-
kb^s^
-
a.
x.
His expected utility will be:
tV(a)
(1)
(a)
principal
the
should set b
Let
t.
the optimal effort is given by:
this case,
Suppose
is
be:
x
Suppose the agent chooses effort
=
is an
V(a)
Where F is a fixed wage and b is a bonus rate based on the output
EU
The
.
a.
that only linear reward schemes are used.
assume
k
Suppose further the agent is
disutility of effort
the
variance utility
mean
parameter, specific to the manager, where
that
r(x)
r
the
to
regard to risk and effort aversion,
with
(
a
variance respectively.
the
increasing convex function in
Assume
us
equal to Exp(
to
with
averse,
risk
parameter,
effort
is
random variable with normal distribution, zero
a
is
assumed
is
a
.
reward
aversion
risk
s
is
e
agent
the
for
increasing concave function,
and
and variance
mean,
Supposi=':
7
-
is an
agent,
the
by
1
=
wants the agent to supply a level of effort
tV'(a)/Q'(a).
a.
Assuming the agent must get at least zero
expected utility, from (1):
28
F
tV(a)
=
principal
The
^
kb^s^
-
receives
."
bQ{a)
.
(2)
.
Exp( x-F-bx)
Substituting
.
principal's benefit from any level of effort
G{a)
s~
Q(a)
-tV(al
'
(
is zero,
cost
are
solution
zero,
will
the
be
is
an b.
F
{?,)
]
termed the agency cost.
If
t
and the effort will be supplied costlessly.
agency
cost
restored.
will
also
agency
The
the
is:
kt-s"[V' a) /Q (a)
-
last term in equation (3)
The
agency
=
for
be
zero
the
=
If k or
and the first-best
cost will increase as
t
and k
increase,
the effort and risk aversion parameters of the agent, and as the
variance
s
process.
2
increases,
the
degree
of
randomness
of
the
production
This last term is equated with task uncertainty in this paper.
29
FIGURE
i
Summary of the Research Framework and Hypotheses
:
TASK
UXCERT.MXTY
-^
^3
=
'
'
4
1
'
'
eo
in
— <0
« —
o o
o o
3)
T5<
rt
rr
CVJ
eo
O
— o o
39
o o o
in
ffl
t-
-^
o -^
o o o o
e>j
cvj
»3<
00 -' O) <M
cj ir: CO -^ CO
rt -< c<j -^
o
o
o
o
o
o
c
«
3
*•>
T
0> C(O
—
c^ *^ ^
T CM O " -^ O
o o o o o o
ifi
ift
ry
ift
•J)
w
C
0)
>.
-J
c
—
O
—
o o
O — O O
Ifl
;o
<4-l
a;
—
flo
U
O
C~ CCO CO CO
00 I>
<? irt
o o o o o o o
o c
C 3
c ju
o
c>jcoCT«i.omoo
-J)
UOC-<CC0—'OOCOCO
t-OOOO—'OO
cocooooo
«3
—
•
it-
o
u
CM
s.
7)
ifsoiftin
ococooj—
ir;r«o—'Otci.o-'O
COCOCMOO — OCM — O
ooooooooo
cCiC^ooic-aocvjooi
t~COCMCM — OO—'OO
oooooooooo
Table
2
First order correlation coefficients between
aspects of budget reliance
Measurement
intensity
Shorter
budget
period
Lower
budget
adaptivity
Impor-
Table
3
First order correlation coefficients between aspects
of budget reliance and task uncertainty
^"^^^^^^
Aspects
Table
4
First order correlation coefficients between aspects of budget
reliance and risk and effort tolerance
Aspects of
risk and effort
tolerance
A.
A.
Aspects of
budget
reliance
Measure- Shorment
ter
intenbudget
period
sity
Risk tolerance
.38i:
Entrepreneurial style
High risk/return preference .292
Effort tolerance
Hours
Intensity
.042
.101
.079
.030
014
Lower
budget
adaptivity
312^
156'
Importance
Disregard
of
for
meeting best
budget results
175:
17r
163:
112'
Budget
reward
contin
gency
.100
.071
1
Table
5
Mean differences in price uncertaintyand physical versus
monetary budget measurement; T-statistics
Physical
units
Monetary
units
Input prices:
Volatility
Unpredictability
2.20
1.682
-1.05
-0.62
Output prices:
Volatility
Unpredictability
3.43^
2.37
-1-29^
-1.91
3: p <0.01
that the mean for that measure is
1: p <0.10; 2: p <0 05
significantly different from the mean for the other measures.
.
;
35
Table
6
First order correlation coefficients between aspects of
task uncertainty and risk and effort tolerance
Risk tolerance
EntrepreTask uncertainty:
Effort tolerance
Table
7
Budget measurement and functions
Functions:
Internal
operations
Sales &
purchasing
Administrative
support
Research &
development
Total
Physical units:
Inputs
37
Outputs
Outputs/inputs
Monetary units:
Costs
Revenues
85
80.2
19
64~
69
47'^"^
138
133.4
54
76
364
78.6
16
135
Table
8
Mean differences in aspects of budget reliance across
functions; T-statistics
^^^\^
Table
9
Mean differences in aspects of task uncertainty
across functions; T-statistics
Functions:
I
i
Sales &
Internal
operations purchasing
Administrative
support
Research &
development
Task uncertainty:
45^
-0.38
-1.17
0.20
Input price volatility
Input price unpredictab.
3. Output price volatility
4. Output price unpredictab.
1.
2.
-0.87,
-2.23'
Operating dynamism
6. Operating unpredictability
7. Workflow interruptions
8. Workflow unpredictability
9. Nonstandardization of work
10. Dependence on other units
11. Dependence of other units
5.
15
-2.14
-1.48,
0.55,
1.80'
-0.81
-0.44
-2.16'
-2.24'
2.95i
3.91"
1.10
1.07
-0.29
-0.06
0.27
-0.13,
-2.45'
0.29
0.56
1.63
61
28
18
-1-17,
-o.io'
0.85,
-4.08'
0.04
-1.59
0.34
-1.11
-0.53
0.86
1
1
1.00,
-0.37,
2.22'
0.01
that the mean for the function is
significantly different relative to the mean for the other functions.
1:
p <
0.10;
2:
p < 0.05;
3:
p
<
39
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42
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