Linking control systems to business unit strategy: impact on performance

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Abstract

Rooted in continguency theory, this paper examines linkages between strategy, incentive bonus system and effectiveness at the strategic business unit (SBU) level within diversified firms. Data from 58 SBUs reveal (1) that greater reliance on long-run criteria as well as subjective (non-formula) approaches for determining the SBU general managers' bonus contributes to effectiveness in the case of “build” SBUs but hampers it in the case of “harvest” SBUs, and (2) that the relationship between extent of reliance on short-run criteria and effectiveness is virtually independent of SBU strategy.

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    Both authors contributed equally. The sequence of names, as presented here, was arrived at randomly. The authors wish to acknowledge the useful comments provided by Professors Robert N. Anthony, W.W. Cooper, J.F. Dillard, Jim Kinard, Ken Merchant, John K. Shank, Gordon Shillinglaw, Ray Stephens, Richard F. Vancil, participants at The Ohio State University Accounting Research Colloquim, and two anonymous reviewers. Funding support for research on which this paper is based was provided by the Graduate School, Boston University, Graduate School of Business Administration, Harvard University and College of Administrative Science, The Ohio State University.

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