ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
PARTICIPATION IN BUDGETING, LOCUS OF CONTROL
AND ORGANIZATIONAL EFFECTIVENESS
by
Peter Browne 11
WP 1168-80
November 1980
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
PARTICIPATION IN BUDGETING, LOCUS OF CONTROL
AND ORGANIZATIONAL EFFECTIVENESS
by
Peter Browne 11
WP 1168-80
November 1980
Participation in Budgeting,
Locus of Control
and Organizational Effectiveness
ABSTRACT
This study examines the role of the personality variable, locus of
control,
as
moderator
a
the
of
participation and managerial
relationship
performance.
The
—
study employing two separate subject groups
students
and
managers
from
a
large
budgetary
between
results of
laboratory
a
undergraduate accounting
—
company
manufacturing
show
a
statistically significant interaction between participation and locus of
control
affecting
Budgetary
performance.
participation
was
found
to
have a positive effect on individuals who feel they have a large degree
of
control
scale),
over
while
their
having
a
destiny
("internals"
negative
effect
on
the
on
those
locus
of
individuals
control
who
feel
that their destinies are controlled by luck, chance or fate ("externals"
on
the locus of control
applications in
the
scale).
areas
placement are considered.
of job
The results are discussed and possible
redesign
and
personnel
selection
and
1-
Participation
Budgeting, Locus of Control
in
and Organizational
the
participation
of
issue
The
attention
researchers
of
in
Effectiveness
management
in
process has occupied
the budgetary
accounting,
perhaps
this
of
line
research
consequences of
cognitive
have
very
been
participation.
fruitful
a
In
an
The findings
extent greater than for any other budget-related variable.
from
to
study of
of
area
the
in
foremen
in
a
large manufacturing company, Milani [1975] showed that participation was
positively
Collins
associated
found
[1978]
budgetary system.
attitudes
with
a
similar
toward
both
job
association
with
attitude
and
company
and
toward
the
the area of job satisfaction, both French,
In
Kay and
Meyer [1966] and Cherrington and Cherrington [1973] report results which
positive association with participation.
snow
a
that
participation
increased
"internalization"
the
thereby enhancing motivation,
Hofstede [1967]
while
Israel
French,
found
goals
budgeted
of
[1960]
found
resulting
from
As
and
that participation was positively associated with morale.
question
the
On
outcomes
behavioral
of
participation, in particular that of performance, the evidence is mixed.
On the
positive side, Argyris [1952] concluded that the key to effective
performance
is
participation
Green
[1962]
plays
a
extended
participation
in
central
this
role
in
of
business managers
conclusion
found
clear
tendency
and
for
budget
accunplishing
by
inducing motivation.
employing
a
acceptance
gaining
in
noting
Bass
supervisors as
performance
ns-cs-ss
to
and
goals
Becker
this.
the
key
role
Leavitt,
experimental
be
that
and
superior
and
of
[1963]
subjects,
in
the
-2-
ex
peridental group which was more highly involved in target formulation.
Kenis
[1979]
reached
conclusion
similar
a
department managers and supervisors,
survey
a
performance.
with
convincing results on the question are due to Milani
only
a
In
similar vein,
two
a
of
Less
who found
[19751,
weak positive association between participation and performance.
change
not,
contradictory
ftorse
programs,
participation,
could
study
found participation
where he
significantly associated
positively and
in
found
one
involving
increase
an
therefore,
attributed
be
in
are
be
to
found
the
in
productivity.
a
of
a
Even
literature.
a
In
negative association
between participation and performance and Stedry [1960]
showing that
level
the
participation.
to
laboratory setting, Bryan and Locke [1967] found
results,
the effect of
who compared
[1956],
increase in performance in both programs which
an
results
Reimer
and
produced similar
more authoritarian structure resulted in higher
Commenting on
a
literature survey of the subject, Hopwood
[1976, p. 79] provides the following capsule summary:
it appears that an increase in participation in
decision making can often improve morale, its effect on
productivity is equivocal at the best, increasing it under
some circumstances but possibly even decreasing it under other
circumstances.
The practical problem is in trying to identify
which conditional factors determine the wider impact of a
particular type of participative management programme."
"While
The purpose of this paper
is
to report
study conducted to investigate the role of
of control, as one "conditional
factor",
a
the results of
a
personality variable, locus
using
Hopwood'
s
term,
relationship between budgetary participation and performance.
section presents
general
a
proposition
laboratory
in
the
The next
review of the empirical evidence which supports the
that
the
most
fruitful
framework
within
which
to
study the effects of participation on performance is one which includes
-o-
the role of "conditional
factors".
This is followed by
introduces the locus of control variable, develops
relevance
in
section which
rationale
a
context of budgetary participation,
the
a
and
for
its
presents
the
Sections presenting the experimental method,
hypothesis of the study.
the results and the conclusions and limitations will follow in turn.
PREVIOUS LITERATURE
studies
Few
have
undertaken
been
specifically
explore
to
the
Instead,
proposition suggested above.
"Many researchers .... have been
overall problem of either proving
concerned with the broad
or disproving the general
argument (that participation is associated with improved
performance) rather than specifying the conditions for various
results".
[Hopwood, op. cit., p. 79, parentheses added].
influential
several
However,
exploring
studies,
the
relationship
at
various levels of analysis, do provide support for the proposition.
earliest evidence suggesting
The
a
more complex relationship
between participation and performance is probably due to Coch and French
From
[1948].
evidence
supporting
performance.
conducted
find
no
field investigation in
a
in
a
attempt
an
In
direct
a
Norwegian
link
to
a
U.S. company, they found strong
participation
between
replicate this result in
company,
French,
Israel
and
As
and
a
improved
field
study
[1960]
could
significant relationship between participation and performance.
One explanation offered
cultural setting
Hofstede [1967,
,
p.
an
for
these conflicting results was the different
important
281].
conditioning
factor
also
suggested
by
Hofstede concluded his extensive field study
of budgeting practice in Dutch companies with the caveat that the "game
of budget control (as he describes it)
added]
is a western game."
[parentheses
-n-
At the organizational level, Bruns and Waterhouse [1975]
managers
more
in
influence,
counterparts
participating
as
more
appearing
perceived
decentralized organizations
satisfied
organizations
emphasis en budgets and on
being more appropriate.
participation
themselves
budget
in
where
and
as
their
than
relative
the
the
in
having
as
planning,
activities
budget-related
with
centralized
in
more
found that
lack
of
process was viewed as
This suggests that organizational structure may
be an important factor influencing the effectiveness of participation.
the
At
individual
level,
role
the
reward structure
of
as
a
conditioning variable was studied by Cherrington and Cherrington [19731.
In
an
experimental
setting,
they
found
where
that
participation
in
budgeting was low, rewards administered on the basis of aggregate output
rather
budget-related
than
Conversely,
output,
conditions
under
of
high
led
participation,
clearly superior when
rewards were linked
findings
support
intuitively
provided
salience
logically
the
through
provide
primary
a
basis
notion
high
of
for
performance.
performance
budget achievement.
to
appealing
process
a
higher
to
that
The
budgets,
participation,
performance
was
evaluation
if
should
of
the
members of an organization.
Finally,
in
which
performance,
effective
measure;
realm
conditions
is
only
personality variables,
of
the
now classic
[1960], dauonstrating the role of authoritarianism as
study by Vrocm
factor
the
important.
for
individuals
relationship
the
Vroom
individuals
at
the
who
other
between
found
that
were
low
extreme
better under conditions of low participation.
on
high
on
the
a
participation
and
participation
was
authoritarianism
this measure
performed
-D-
general,
In
then,
there
findings
few empirical
are
support
which
the view that the relationship between participation and performance is
moderated
by
variety of
a
may
particular
taken
be
intervening
evidence
as
variables in this context.
variables.
of
Vroom
The
in
personality
of
potential
the
study
The present study is concerned with locus of
another personality variable, and its effect on the participa-
control,
tion-performance relationship.
LOCUS OF CONTROL
In
of
expository paper dealing with the locus of control dimension
an
personality
described
as
accept
they
[Rotter,
Seeman
distributing
Liverant,
and
individuals according
responsibility
personal
for
the
1962],
to
the degree
happens
what
construct
to
is
which
to
As
them.
a
general principle,
"internal control refers to the perception of positive and/or
negative events as being a consequence of one's own actions
and thereby under personal control;
external control refers
to the perception of positive and/or negative events as being
unrelated to one's behaviors and therefore beyond personal
control."
[Lefcourt, 1966, p.207].
Evidence from
psychology literature suggests the relevance of
the
locus of control in the context of budgetary participation.
study,
Cromwell
performed
test,
et
better,
al
.
under
conditions of
externals
while
found
[1961]
preferred,
internals
self-control
and
in
performed
an early
preferred,
a
and
reaction-time
better,
under
The results of this study motivated
experimenter-controlled conditions.
a
that
In
series of inquiries into the impact of congruence between individual
personality
(characterized
conditions of control
These
confirm
the
in
terms
inherent in
basic
result,
a
of
locus
particular
namely
that
of
control)
task-related
the
and
situation.
task-performance
is
a
-6-
experimental
tasks,
nonsense
paired
syllable
recall
[Watson
and
Eatmal,
and
wide
a
variety
of
Mulry,
1965],
and
digits
1967]
1972].
pattern suggested by the results of these studies is depicted
The
Figure
1.
INSERT FIGURE
It
for
decision-time [Rotter
including
reversal tests [Houston,
in
congruence
personality/ situation
of
function
should
probably
noted
be
only
that
valid
in
depicted
relationships
the
ceteris
a
HERE
1
paribus
in
Figure
are
variables,
Other
sense.
1
explicitly controlled for in the experiments from which the framework is
derived are likely to exert some influence on the relationships.
present context,
found
structure
Reward
paper.
[Gregory,
1978]
relationships presented
The
connection
relevance
of
between
the
situation and
Hopwood
,
members
1976]
with
formulation.
of departure
have
in
Figure
notion
suggested
influence
an
on
[Rotter,
the
of
portrayed
strength
source
of
above
control
participation [e.g., Vrocm, 1960;
ascribe
some
idea
to
it
the
degree
of
influence
Moreover,
if
from budget,
1975]
of
in
stems
in
and
of
the
from
the
particular
a
writers
Several
Heller and Yukl
providing
the
source of control
,
1969;
organizational
process
of budget
subsequent performance is measured
the
in
1.
results
the
research study reported
the
been
has
to
in
the concept of budgetary participation.
in the area of
the
example, reward structure is an important variable,
for
but one which is explicitly excluded
this
In
in
terms
can be viewed as being
dependent on the degree of budgetary participation.
Under conditions of
-7-
high
participation,
member
organizational
an
likely to
is
exert substantial influence en ths setting of budget goals,
the
source
control
of
Alternatively,
participation,
in
performance
over
source
the
characterized
situation
a
situational
of
internal
is
control
able
be
to
and, hence,
in
this
situation.
by
low
budgetary
can
described
be
as
HYPOTHESIS
The
hypothesis
of
the
Characterizing
discussion.
internally-controlled
study
present
budgetary
high
situation,
follows
this will
preceding
the
from
participation
be
as
an
congruent only for
individuals who are internals on the locus of control dimension and they
are hypothesized
participation
hypothesized
perform better
to
will
to
congruent
be
in
only
Conversely, low
situation.
this
for
externals,
perform better under low than under
they
and
are
high participation
conditions
The hypothesis at test can be
follows
formally stated
in
its null
form
as
:
There will be no significant interaction between locus of control
and participation affecting performance.
METHOD
A
laboratory
populations
a
in
was
experiment
employed
sample of students
the
design.
study,
from
primarily
Subsequently,
to
a
an
Lo
using
subjects
drawn
from
separate
two
investigate the research question.
First,
undergraduate accounting course took part
provide
pilot
testing
of
the
sample of managerial personnel from
experimental
a
large San
-8-
Francisco Bay Area manufacturing company undertook the experiment.
latter
provided
sample
replication by not only testing
systematic
a
The
a
sample of subjects different from the student group, but also by testing
a
sample
of
ultimate
subjects
interest,
characteristically
namely
managers
closer
activities
whose
population
the
to
preparation, and control through the use of budgets.
embrace
of
budget
subjects took
All
part voluntarily without monetary compensation.
choice
The
of
considerations.
experimental
an
primary
Of
approach
importance,
based
was
survey method.
Second,
the
study
variables is particularly amenable to
effects
are
situations.
considered
to
manifest
Finally,
the
approach
a
of
effects
the
three
methodology permits
the
statements of causation which are precluded by the use of,
a
on
for example,
of
personality
laboratory approach, since these
themselves over
provides
wide
a
variety of
control
experimental
for
over variables which are not focal to the research.
experiment
The
Sciences
conducted
was
Laboratory of
the
University of California,
Center
Berkeley.
in
for
It
the
Management
Research
and
Behavioral
Management
in
entailed the use of
a
at
the
business
game, which was administered to subjects using the computer terminals in
the laboratory.
Subjects
escorted
to
duration
explaining
of
were
greeted
upon
cubicles
their
individual
the
experiment.
the business game,
the game were answered.
the computer was
the
The
their
arrival
in
Subjects
which
read
at
the
they
an
after which general
laboratory
remained
instruction
the
sheet
questions concerning
first part of a subject's interaction with
administration of the locus of control
[Rotter, Liverant and Crowne,
for
and
1961].
instrument
This instrument is widely used
in
-Q_
psychological
to
its validity and
1
extensive literature reviews
several
research and
reliability [Potter,
Joe,
1966;
attest
Strickland
1971;
These are important considerations in the present context since
1977].
the strength of the experimental approach in producing causal statements
depends
part
in
soundness
the
on
measures locus of control on
external);
giving
total of 29 items.
an
subjects had completed
After
in
perishable
organization
an
product.
six
the
measure.
instrument
The
zero (extreme internal)
items
included
are
locus of control
to 23
fillers,
as
instrument,
the
Subjects assumed the role of one of four senior
business game started.
managers
the
scale from
additional
(extreme
a
a
of
For
which
manufactured
each of twenty
were required to make two decisions;
the budgeted level of unit sales
and
sold
quarters,
fiscal
one regarding
single
a
the
subjects
recommendation for
a
and one regarding the
for the quarter,
price to be charged for the product during the quarter.
For
each quarter's play of the game,
a
subject was first asked to
make a submission of their recommendation for the unit sales budget.
guide
subjects
reports from
a
sheet of
a
first
the
in
few
quarters
of
game,
the
To
performance
simulation of the previous four quarters were provided on
paper
in
the
laboratory cubicle.
These were the only data
subjects had available to work with in the first of the twenty quarters.
As
the game
proceeded,
however,
the
quarter
results of each completed
became available in hard copy, and the subject could refer back to these
data
as
desired.
The
last
section
of
Appendix
presents
1
a
sample
performance report.
Following
the
subject's
submission
of
a
budget
volume
recommendation, the recommendations of each of the other tnree managers
2
-10-
after
were presented and,
short delay,
a
the
budget by top management was presented.
the
instruction
sheet
that
top
final determination of the
Subjects had
management
been
informed
make
would
in
final
the
determination of the budget, giving consideration to the four managers'
recommendations
It
was at this point that
Top management'
the
participation induction took place.
final determination was a weighted
s
recommendations,
but
with
participation conditions.
weights
the
In
average of the four
differing
the high participation condition,
of 0.9 was attached to the subject's recommendation and
was attached
a
of
Subjects
were
the
weights
weight of 0.1
randomly assigned
to
respectively,
were,
two
weight
a
the average of the other three recommendations.
to
low participation condition,
0.95.
each
in
In
0.05
the
and
one of these two conditions
for the duration of the game.
After
budget,
informed
being
the
subjects were
of
top
presented
management's
determination
with a statement of the
of
the
percentage
deviation of each of the four recommendations from the final decision of
top management.
high
Due
participation
to the nature of the manipulation,
condition
would
typically
observe
percentage deviation of their own recommendation
than the percentage deviation of any of the other
subjects in the
a
from the
much
smaller
final budget
three managers.
The
purpose of this statement of percentage deviations was to emphasize the
extent to which the subject's recommendation was reflected
the
final
participation
was
in
budget, thereby strengthening the participation induction.
In
the
present
context,
therefore,
operationalized as the amount of influence an individual had on
budget which was jointly set.
In
a
final
order to check the level of perceived
.11.-
participation
in
a
important items (nunbers
sortie
,
and 6)
H
2,
included
were
post-experimental check questionnaire, presented in Appendix
2.
Subjects w?re next informed of the level of advertising expenditure
to
undertaken
be
request
Each
a
subject was the selection of
exa ctly equal
subjects
earlier,
direction
final
the
to
were
equally
as
budget
told
a
price)
led
to
Conversely,
available
product but
the
orders.
in
sale of
all
of actual
either direction,
too low
would
therefore,
game objective was,
The
sales
which
in
either
short
fell
of
unsold product which was dumped
due to its perishable nature.
in
volume
sales
from budget
levels
Sales
undesirable.
budget (due to too high
actual
an
view departures
to
task
instruction sheet mentioned
the
In
.
The
price which, combined with
a
produce
would
expenditure,
advertising
the
charged.
be
to
decision.
this
for
followed by a
was
price
the
decision,
second
responsible
was
alone,
subject,
confronting
subject's
the
for
This
quarter.
forthcoming
the
in
a
price would result
also generate
the departure,
to minimize
from budget,
and
unfilled
performance was
measured in this way.
functional relationship between sales volume,
The underlying
price
and advertising was as follows:
Q
where
=
JfO,
000 - 20p + A/2
Q is quantity sold
(including unfilled orders)
p is the price charged
A is the
Pilot testing
this
function
and
advertising expenditure
of several
could
in cents,
not
functional
be
relationships
uncovered
by
indicated
subjects,
neither
that
was
complex as to preclude performance differences across subjects.
while
it
so
-12-
In
presented.
variance
phase
final
the
report
This
which
each
of
summarized
resulted,
measured
being
sample output for
A
subject is presented in Appendix
performance
a
decisions made
the
performance
value of the budget variance.
An
quarter,
report
the
and
by
the
was
budget
absolute
high participation
a
1.
important point to note
in
connection with the game design
is
the fact that no budgeted sales level was any more difficult to achieve
than any other.
For all possible budget levels, there existed one price
combination
(in
with
expenditure)' which
advertising
given
the
"clear the market" and produce the desired
would
zero variance, regardless of
the participation condition under which the final budget was arrived at.
Thus,
no
systematic
difference
task
in
difficulty existed
between
the
high and low participation groups.
RESULTS
A.
Phase One - Student Subjects
Forty-six
undergraduate
part in the study.
On
accounting
and 6,
4
the
of
to
take
participation.
together with the results of
the means, are presented
in
a
The
mean
assignment to the
random
participation treatment conditions appeared
perceptions
volunteered
the basis of the responses to the post-experimen-
tal check questionnaire items 2,
two
students
to
scores
induce the
for
each
intended
question
statistical check for differences between
Table
1.
Table 2 presents the results of the administration of the locus of
control
measure.
These
results
are
consistent
with
a
wide
results for other student samples reported by Rotter (1966).
range of
-13-
The
analysis relating
hypothesis
the
to
performed
was
under
the
assumption that the correct model specification was as follows:Y = Bj + B 2 X + Y Z + 6XZ + e
where
performance,
Y is
the
(1)
twenty trials of the game
variance
budget
average
for
each subject.
over
3
the
Note
that
control
and
larger values of Y denote inferior performance.
score
X is locus of control
.0
1
and
binary variable for participation
is a 0/1
Z
XZ is
for low participation
for high participation
the
interaction
between
locus
of
participation
As a first approximation,
no
is
the
evidence,
empirical
or
psychology literature,
involving,
for
example,
this model can be justified in that there
the
accounting or
non-linear
relationship
either
theoretical,
supporting
a
higher-order
levels
in
of
independent
the
variables
The results of this regression are presented
hypothesis
tested by means of an
is
examination of
for the interaction term in equation (1).
6
was
null
significantly different
hypothesis of no
frcm
interaction.
Table 3.
in
the coefficient
6,
The results were as expected.
zero,
In
The null
permitting
addition,
P
2
rejection of
the
negative
and
was
significant implying that high locus of control scores (externals)
associated
(i.e.
high
with low scores
performance).
budget variance,
on
y
was
also
the
negative
were
dependent variable
and
significant,
suggesting that performance was generally superior in conditions of high
participation.
The
importance
of
these
"main
effects"
should
be
-14-
considered
further
analysis
results
and
rejected in
As
were conducted
more
to
explore
to
precisely
assess
overall meaning
the
whether
hypothesis
null
the
of the
is
fashion consistent with the expectations.
a
approach,
first
a
nature of the interaction and two forms of
light of the
in
useful
a
form
of
analysis
further
involves
decomposing equation (1) into two separate equations, as follows:
For Z
=
i.e. high participation,
1,
Y=(B +y>+(B +5)X+e
(2)
2
1
For Z
=
0,
i.e. lew participation,
Y
=
9,
+
B
2
X +
e
(3)
The composite coefficients and their standard errors were developed
the coefficients generated from the regression in equation (1).
presents
all
coefficients
four
in
equations
coefficient for the high participation model [(B
was significantly positive.
scores
(more
external)
(inferior performance)
coefficient
significantly
budget
intercepts was
test of
interaction
intercept
ordinal
was
participation
for
in
6)
slope
The
.
1
equation (2)],
[B
Ey contrast,
2
in
performance
that
with
higher
budget
locus
equation
variances
the slope
was
(3)],
improvement
(lower
control
scores
of
The interaction was, therefore, of the predicted type.
(more external).
A
implying
associated
was
+
larger
with
and this was as expected.
negative,
variances)
associated
low participation model
the
for
2
(3)
Table
implies that larger locus of control
This
were
and
(2)
from
model,
low
the
equations (2) and
which is X + 0.47°
(
(3)
,
conducted
disordinal.
or
Bj
also
+
y)
,
is
participation
5
The
to
establish
intercept
significantly
model,
Pi.
for
smaller
The
intersect at X (locus of control
i.e.
whether
two.
score)
the
the
high
than
the
curves
of
=
10.21,
not significantly above the mean score for X.
15-
analyses
These
the
suggest
disordinal
a
curves intersect at
interaction although the fact that
locus of control
a
larger
score
than
mean
the
implies that high participation is generally the preferred condition (in
except
terms of performance),
result
consistent
is
with
relatively extreme
for
results
discussion of the
the
externals.
This
presented
in
Table 3.
more
second,
a
P.s
Johnson-Neyman
reliable
test
[Johnson
technique
and
interaction
of
Jleyman,
1936]
the
was conducted.
On
this test establishes
the basis of the slopes and intercepts in Table 4,
a
ordinality,
region for the continuous variable (locus of control)
significant differences in the dependent
ascribed
calculated
Figure
2,
the
to
categorical variable
was 8.46
to
also suggests
and
13.00,
a
within which no
(performance)
variable
(participation).
this result,
depicted
can
be
range
The
graphically in
disordinal interaction.
INSERT FIGURE 2 HERE
The hatched
areas in Figure 2 represent performance differences between
the high and low participation subjects which do
significance.
not
For locus of control scores below 8.46
internal subjects with scores approximately equal
reach statistical
(X - 0.02a
X
),
to, or less than,
i.e.
the
mean, low participation results in significantly poorer performance than
does
high
participation.
performance
under
the
On
conditions
of
subjects with locus of control
1.23a
under
).
other
low
scores
participation
at
least
This result suggests that performance
conditions
of
high
significantly
hand,
participation
only
as
is
for
is
noted
high as
better
only
13.00
for
(X
+
significantly poorer
relatively
extreme
-16-
externals,
result which is consistent
a
measure
control
of
whether
permit
the
question
The
approach
suggested
that
assumption
need
the
the
locus
the
in
analysis
an
ordinal
an
of
scores
locus
perform
to
provides
scale
the
of
use
properties
scale
the
the previous discussion.
v/ith
regression
a
based
measure
of
the
on
The
only.
Spearman rank correlation coefficient [Siegel, 1956] was used to perform
each
For
test.
this
of
locus
conditions,
participation
two
the
of
control ranks were correlated with performance ranks making the results
of the test comparable with the analysis and discussion of Table
the high participation group, r
(p<0.01), higher ranked locus of
0.7^
=
5
For
4.
control scores (externals) being associated with higher ranked scores on
dependent
the
variable
participation group,
consistent
r
those
with
=
performance)
(inferior
These
(p<0.01).
-0.63
discussed
above
in
For
.
results
are
connection
with
examining
one
low
the
entirely
Table
it,
permitting rejection of the null hypothesis.
analysis
final
One
superior
conducted,
was
performance
explanation
for
"preferred"
participation condition
low
and
participation
coefficient
employed
was
(i.e.
externals).
as
the
the
on
part of subjects
high
For
dependent
potential
their
in
participation
internals
subject,
a
learning
The
learning
each
variable.
coefficient was derived from the following model:
Y
Taking
form
,
log
=
ax"
L
transforms converts this exponential
function
into
a
linear
giving
log y
where
=
log a -L log x
budget variance
y
is
x
is experience (number of quarters),
a
and
and
L are coefficients estimated by regressing y on x
.
-17-
1.
represents the slope °f the curve in this model and the L values were
transformed
variable
in
coefficient,
with
the
internals
failed
locus of control
low
and
significance.
reach
to
categorized
was
into
mean value and emitting the data with
-
X
sharpen
To
high
however
the
the
analysis,
by splitting
groups
two
with
associated
externals;
the
at
the closest integer-valued
9,
subjects were lost as
The data of four
the mean of 8.52.
X score to
Y
interaction
The
interaction consistent
an
participation
dependent
the
as
(1).
were
rates
learning
better
that
notion
coefficient
equation
to
from this regression suggested
6,
participation
identical
regression
a
coefficients and used
learning
into
a
result of this procedure, and the remaining forty-two sets of data were
analyzed with
in
Table
5.
a
Lii
=
implies
0.71
average,
to
example,
a
7H%
of
subject
with L
10,000 on the first trial
the second trial and to
The
predicted
results
form,
previous
its
internal
for
level
can expect to reduce
6, '100
Tsble
reduced,
is
doubles.
For
budget variance of
is
an
evident
of
interaction
in
the
the
"
incongruent"
groups.
The
results
of the
ANOVA,
the
"congruent"
high participation/ internal and low participation/ ex ternal groups,
in
on
the variance to 8,000 at
suggest
5
learning
faster
a
the
in
fourth trial, etc.
at the
in
subjects
experience
as
0.80 who begins with
=
presented
namely
that
the budget variance
participation condition,
high
The marginal means have the following
and are denoted I...
interpretation;
Hie marginal means are presented
factorial ANOVA.
2 x 2
than
presented
in
Table 6, confirm this.
B>
Phase Two - Manager Subjects
Forty-eight middle
manufacturing
study.
company
level
formed
managers
the
from
sample
for
a
San
the
Francisco
second
Bay
phase
of
Area
the
-1 8-
minor exceptions, the results obtained for the student sample
V.'ith
vrire
also obtained
These results are presented
the manager sample.
for
Q
in
Tables
through
9
post-experimental
administrations.
of
Tables
12.
and
2
The results in Table 7
internal
reveals
8
than
that
significantly different (t
mean
score
subject samples reported
results
and
locus
of
-
the
in
of
the
control
that
In
those
with
of
results
the
significantly more
appear
p<0.01).
5.52,
of
comparison
shows
test
A
fact,
for
means
two
the
are
comparison
a
of
variety of other
a
literature confirms that
the
managers
populations of respondents.
than most other
appear more internal
the
managers
managers
the
for
present
again confirm the effectiveness
A
the
students.
the
8
questionnaire
check
participation manipulation.
the
Tables
the
and
7
9
The
implications of this are potentially significant in that if managers are
indeed
characteristically extreme
participative budgetary environments
without
involved.
from
reference
specific
the
However,
present
reveals that
performance
the
differences
significant is 2.56
Thus,
dependent
budget
on
(X
the
variable
variance
formed
each
of
by
for
the
- 0.74 °J>
basis
for
scores
across
be
The
locus
of
the
game
independent samples.
—
to 6.35
both
(X
types
averaging
subject,
the
more
as
and
null
far
as
+•
of
suitable
0.54a
technique
the
twenty
is
conditions
—
one
are
using
observations
using
learning
hypothesis
which
).
testing
second
data
the
outside
control
of
a
as
Johnson-Meyman
participation
two
variable formed on the basis of the observed
trials
viewed
strong
too
is
concerned.
are
range of
could
possible that
is
it
personality profile of the personnel
the
conclusion
this
study
to
internals,
over
a
for
dependent
a
the
rejected
twenty
for
two
-19-
DISCUSSION
Fran
these
results,
can
it
realization of participation
locus
of
control,
At least
perfonnar.ee.
congruent
internals
of better
game
and
rates over
experimental
the
personality variable,
the
significantly
affected
the superior performance of subjects in
part,
conditions
externals
low participation
learning
that
interaction
this
personality/ situation
arid
with
interacted
that
in
concluded
be
— i.e. high
— was seen to
course of the
the
participation
be the result
trials of the
twenty
.
Within the confines of experimental design, statements of causation
generalizing
however,
recognizing,
possible,
are
statements
such
participation,
is
that
should
care
principally because
exercised
causal
the
only an experimental realization.
be
In
in
variable,
other words, we
cannot be certain that the operationalization of participation employed
in
this study is
managerial
real
possesses
replica of the process which operates
faithful
a
setting.
important
In
particular,
interpersonal
aspects
such
as
conflict resolution,
the dynamics of which are absent from the operationalization employed
this
study.
In
a
broader
sense,
the
generalizability
or
to
which
all
faithfully replicate
In
the
those
characteristics
which would
be
of
experimental
the
observed
in
the
in
external
validity of the observed experimental effect depends critically on
extent
a
process
"real-world"
the
in
real
the
setting
world
view of the surrogation of task, reward and situation, care should be
exercised
to
avoid
present results to
In
a
unqualified
statements
of
applicability
of
the
real setting.
retrospect, the methodology could have been strengthened by the
inclusion
in
the
post-experimental
check
questionnaire of items which
-20-
elicit
protocol
subject
a
of
the
effects of
behavioral
could impair the internal validity of the experimental effect.
include
Examples
impact of the unobservable "other managers"
behavioral
the
which
factors
and
the level of subject commitment to the stated game objective of absolute
strategies such as minimization of
variance minimization (versus other
objectively
determinable
out-of-pocket
costs
only).
The
of
use
a
monetary reward may have helped to reinforce the stated game objective.
The implications of these limitations assume greatest importance if
effects
their
along
locus
the
of
confounding.
The
variables
causal
the
random
assignment
minimize the likelihood of
helps
to
along
other
if
had
it
continuum,
control
of
identification
treatment groups or
systematically different across
are
dimensions, but
included
items
the
because,
is
of
a
case,
made more difficult due
subjects
treatment
to
to
groups
systematic differences resulting
a
check questionnaire,
post-ex perimental
addressing
such
in
issues,
these
provided
have
would
data to specifically test for the existence of such differences.
Bearing these caveats in mind,
however,
it
is
possible to consider
the implications of the results of this study from two perspectives, job
re-design and personnel management.
For
organization,
an
discretion
members,
over
it
is
(specifically
the
level
or
of budgetary
conceivable
with
regard
organizational
that
to
role
afforded
participation
descriptions
participation)
which
sub-unit,
to
can
suit
be
the
to
has
its
modified
individual
characteristics of role occupants.
It
may
be
organizational
conditions
which
case,
the
sub-unit,
to
a
however,
faces
large
that
an
environmental
extent
dictate
the
organization,
and
or
technological
necessary
level
of
-21-
participation
members
of
in
budgetary
matters.
characteristics may have very little flexibility
of participation.
people
within
In
the
such circumstances,
organization
supported
by management
individual
characteristics
with
and
a
can
in
role
the
is,
terms of the level
the placement and mobility of
be
view to
role
That
consciously
achieving
and
a
purposely
between
fit
Figler
characteristics.
[1977]
calls this the creation of the right "chemistry" between individual and
role
characteristics,
and
Dunnette
[1966,
p. 223]
concludes
his
discussion of selection and placement with the following comment:
"Our major theme in this book has been that wise personnel
decisions demand evidence about the individuality of people,
the special requirements of jobs, and interactions between the
two"
(emphasis added).
.
Further research which improves the general izabil ity of the present
results, and which investigates the role of other variables in
a
similar
context will enhance our knowledge and understanding of the relationship
between
the characteristics of budgetary control
characteristics
of
designed to control.
the
individuals
whose
behavior
systems and
the
systems
are
the
-22-
TABLE
1
POST-EXPERIMENTAL CHECK QUESITONS - STUDENT SAMPLE N=46
Q
-23-
TABLE
4
COMPOSITE REGRESSION COEFFICIENT:
Coefficient
-
STUDENT SAMPLE
-24-
TABLE
7
POST EXPERIMENTAL CHECK QUESTIONS - MANAGER SAMPLE N=48
Q
-25-
TABLE
10
COMPOSITE REGRESSION COEFFICIENTS - MANAGER SAMPLE
Coefficient
-26-
FIGURE
1
DIAGRAMMATIC REPRESENTATION OF PAST RESULTS
PERSONALITY:
LOCUS OF CONTROL
HIGH
(PARTICIPATIVE)
SOURCE CF
CONTROL IN
PARTICULAR
SITUATION:
INTERNAL
CONGRUENCE
High Performance
LOW
(NON-PARTICIPATIVE)
EXTERNAL
FIGURE 2
RESULTS CF JOHNSON-NEYMAN TECHNIQUE (STUDENT SAMPLE)
Budget
Variance
(i.e, per fonnance)
8.46
•internal
10.21
Locus of Control
13.00
external-^
-28-
FOOTHOTES
issue of construct validity, Joe [1971] presents an extensive
of data which, he concludes, generally supports the
contention that the construct operates consistently across a wide
variety of situations.
On construct independence, Joe also reports
satisfactorily low correlations between locus of control and a wide
variety of variables ranging from intelligence to political
affiliation.
However, one problematical area which persists is with
the Marlowe-Crowne Social Desirability (S.D.) Scale [Crowne and
Marlowe, 1961].
While Rotter [1966] reported insignificant
correlations with S.D., Joe reports more recent correlations as high
as -0.12, externals tending to be more susceptible to social norms of
behavior.
On reliability, Harrow and Ferrante [1969] established a
six
month test-retest coefficient of 0.75, while Rotter reports
several internal reliability coefficients ranging from 0.65 to 0.79On
the
coverage
In
actual
fact,
these
randomly generated from
were robots, and their
a uniform distribution.
recommendations
were
The residuals of this regression were tested for constant variance.
Bartlett's test, x 2 = 18.06 fails to permit rejection of the null
hypothesis of homoscedastic error structure. However the direction of
the test result did reveal a (statistically insignificant) tendency
for error variance to be larger among externals in the high
participation condition and internals in the low participation
condition.
This result is
interesting because the notion that
incongruence (in terms of figure 1) should produce erratic performance
is consistent with the expectations for the major hypothesis.
The
model in equation
proved satisfactory in terms of fit with 33.5? of
the criterion variance explained by the independent variables.
This
In
proportion is statistically significant (P" = 7.05, p<0.01).
addition, an examination of the residual plot for normality,
a
critical least squares assumption, revealed no evidence of serious
departure.
This evidence, together with the Bartlett test results,
provides some ex post facto justification of the suitability of
1
equation
1.
This decomposition follows Kmenta's [1971] use of equation
to
specify peace-time and war-time consumption functions.
See Kmenta p.
1
121.
Formally, an ordinal interaction is one in which the "rank order of
the treatments is constant," whereas a disordinal interaction is one
in which the "rank order of the treatments changes" [Lubin, 1961].
A
less rigid approach to the issue of interaction ordinality is taken by
Kerlinger and Pedhazur [1973,
suggest that if the
who
216]
p.
regression lines for two treatments intersect at a value for the
independent variable which is within the "research range of interest"
the interaction is considered disordinal.
,
This model has been suggested by Andress [1951], Baloff and Kennelly
[1967], and by Dopuch, Birnberg and Demski [1971].
-29-
7
-
l
-
'•'•Si
n.s., and t
respectively.
8.
=
1,00,
n.s.,
for the student and manager groups
Equation
again proved satisfactory statistically.
1
Bartlett's test
fails to permit rejection of the null hypothesis of constant
error variance and the regression explained a significant
(F=4.79,
proportion of the criterion variance.
p<0.01)
The Spearman rank
correlation coefficients were also consistent with the regression
results.
For the high participation group, r
= 0.50 and for the low
participation group r
= -0.68, both significant at p<0.01.
For the
s
learning analysis reported in Tables 11 and 12, five data points were
lost by removing the data of subjects with a locus of control score
X = 5, the closest integer-valued X score to the mean of U.75.
2
X =1 7. 3^
Rotter
9.
[1966] reports mean scores from ten different samples, the
means ranging from 5.9 for peace corp trainees to 9.6 for 18-year old
non-student subjects.
10.
interesting further result is worthy of note.
Using the response
question 1 of the post- experimental check questionnaire (Appendix
2) as an admittedly crude surrogate for "job satisfaction"
reveals
significant interaction terms, 5, from equation 1 for both students
and managers.
For students, t = -1.71, p<0.05, while for managers t =
-1-95, p<0.05.
The coefficients assume negative values (rather than
positive values as shown in tables 3 and 9 for performance) because
while performance is a negative function of budget variance, "job
satisfaction" is a positive function of the post- experimental check
question response.
An
to
,
-30-
REFERENCES
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Harvard
Argyris, C.
The Impact of Budgets on People (School of Business and
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,
Baloff, N. and J.W. Kennelly, "Accounting Implications of Product and
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PP.
Bass, B.M. and H.J.
Leavitt, "Experiments in Planning and Operating,"
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,
Coch
,
L.
and J.R.
P.
Relations (1948,
French, "Overcoming Resistance to Change," Human
pp. 512-533.
1),
Collins, F.
"The Interaction of Budget Characteristics and Personality
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,
Cromwell, R. L.
D. Rosenthal, D.K. Shakow and T. P. Zahn
"Reaction Time,
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pp. 363-380.
,
,
,
Crowne,
and
D. P.
D.
Marlowe, The Approval of Motive
,
(Wiley,
1964).
Dopuch, N., J.G. Birnberg and J.S. Demski
Accounting
Cost Accounting;
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,
1974)
.
Dunnette, M.D.
,
Personnel Selection and Placement (Wadsworth,
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Figler, H. R.
"How to Hire an Executive - Intelligently," Personnel
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,
French, J.R. P., J. Israel and D. As, "An Experiment on Participation in
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Interpersonal Dimensions of Decision-Making,"
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Gregory, W.L., "Locus of Control for Positive and Negative Outcomes,"
Journal of Personality and Social Psyc'nology (1978, 8), pp. 840-849.
Harrow, M. and A. Ferrante "Locus of Control in Psychiatric Patients'',
J ournal of Consulting and Clinical Psychology (1969, 33), pp. 582-589.
,
Heller F. and G. Yukl
"Participation, Managerial Decision-Making and
Situational Variables" Organi zation Beh avior and Human Performance
op. 227-241.
(1969, 4)
,
,
,
Hofstede, G.H.
Ho p wood
,
The Game of Budget Control (Van Gorcun,
1967).
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,
1976).
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Stress," Journal of Personal j ty and Social Psychology (1972, 21), pp.
249-255.
Joe, V.C., "Review of the Internal-External
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Their Applications to Sane Educational Problems"
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1 973)
,
,
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,
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,
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"The Relationship of Participation in Eudget-Setting to
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,
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-32Kotter, J.B., "Sane problems and Misconceptions Related to the Construct
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,
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,
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.
S.
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,
,
Stedry, A.C., Budget Control and Cost Behavior (Prentice-Hall,
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,
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.
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Participation (The Ford Foundation Doctoral Dissertation Series,
,
1960).
,
- 33~
AJ^NDIJLJL
SAM PLE OUTPUT FOR ONE PERIOD OF GAME
BUDGET FORMULA TION FOR QUARTER
-
HIGH PARTICIPATION SUB J ECT
}_!_
PLEASE ENTER YOUR RECOMMENDED SALES BUDGET:
24600
Y
(Y/N)
IS 2 4 600 CORRECT?
OTHER MANAGERS' RECOMMENDATIONS:
28000
#2
27800
#3.
.
.
#4.
.
31400
.
THE FINAL DETERMINATION BY TOP MANAGEMENT IS
TARGET FOR THE FORTHCOMING QUARTER.
25000.
THE PERCENTAGE DEVIATION OF EACH MANAGER'S
THIS FINAL DETERMINATION IS AS FOLLOWS:
RECOMMENDATION
YOUR RECOMMENDATION
MANAGER # 2 .....
MANAGER #3
MANAGER #4...
0.
THIS IS YOUR
FROM
02%
12.00%
,
11. 20%
.
.25. 60%
OPERATING D E CISI O NS FOR QUARTER
?
THE MARKETING DEPARTMENT HAS ADVISED THAT ADVERTISING
EXPENDITURE FOR THE COMING QUARTER WILL BE $14000.
BASED ON A
S,U,ES BUDGET OF 25000 UNITS AND AN ADVERTISING EXPENDITURE OF
$14000,
PLEASE ENTER YOUR DECISION FOR THE QUARTER'S PRICE:
10. 00
IS
10.00 CORRECT?
Y
(Y/N)
PERFORMANCE REPORT FOR QUARTER #1
PRICE CHARGED DURING QUARTER ($)
ADVERTISING EXPENDITURE ($
SALES BUDGET (UNITS)
ACTUAL SALES PLUS UNFILLED ORDERS
UNFILLED ORDERS (UNITS)
BUDGET VARIANCE (UNITS)....
)
(UNITS)....
10.00
14000
2 5000
27000
2000
2000
-34-
APPENDIX 2
POST-EXPERIMENTAL CHECK QUESTIONNAIRE
The following set of questions is intended to elicit your opinions
Each question is
impressions of the business game in general.
responded to by circling the number on the scale which corresponds to the
It is important that
point which you feel best indicates your belief.
you carefully consider your responses, since they will be taken into
consideration in the improvement of the game for future use.
and
1.
Indicate the extent of which you enjoyed playing the game.
'
1
2
3
Minimal
Enjoyment
2.
12
3^567
Moderate
Influence
3
Minimal
Influence
4
5
6
Moderate
Confidence
7
Minimal
Confidence
Indicate the extent to 'which you felt that your recommendations for
the BUDGET were reflected in the final determinations of top
management
12
3
Minimal
Reflection
4
5
6
Moderate
Reflection
7
Great
Reflection
Indicate the extent to which you felt that your PRICE decisions had an
impact on the demand for product.
12
3
Great
Impact
6.
7
Great
Enjoyment
Indicate the extent to which you felt confident about the decisions
for PRODUCT PRICE which you were required to make during the game.
12
5.
6
Moderate
Enjoyment
Great
Confidence
4.
5
Indicate the extent to which you felt your input to the BUDGET
formulation influenced top management in their final determinations en
the budget.
Great
Influence
3.
1
4
5
12
3
4
Moderate
Dominance
7
Minimal
Impact
Indicate the extent to which you feel that your
the BUDGET dominated those of the other managers.
Minimal
Dominance
6
Moderate
Impact
5
recommendations
6
for
7
Great
Dominance
Date Due
t)FV
%>\#;>
MAR
SEP
5 198J5
88
3
SE u d'89
MG 2
1
%
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JAN l7fc
OCT
*W
i
1986
2 >*88
Lib-26-67
CO., INC.
DEC 8
1983
STREET
CHA.
MASS.
165- 80
no.
McKersie, Robe/Change and continuity
741433
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no. 1 167- 80
John /Executive information
no. 1 174- 80
Pete/Leadership behavior, bu
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002 001 o?a
no.
1169- 80
Pete/Participation
D*BKS
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no. 11
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Brownell. Pete/The role of accounting
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00 132372
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