Environmental uncertainty, corporate strategy, performance measurement and the creation of economic value

L.C.M. Groot
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L.C.M. Groot: Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics

No 013a, Serie Research Memoranda from VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics

Abstract: Evidence from practice indicates that firms frequently alter their performance measurement systems in order to accommodate effectively to dynamic circumstances and to changing corporate strategies. One common element in this development is an increasing uncertainty on the part of corporate managers about the usefulness of accounting information for performance evaluation. The idea is spreading that performance evaluation systems, in order to become effective, should include not only accounting information, but also non-financial and qualitative information as well. Publications on the 'Performance Pyramid' (McNair, Lynch & Cross, 1990) and on the 'Balanced Scorecard' (Kaplan & Norton, 1993) do indicate that changes are being made in this respect. Despite much debate on the issue of performance measures, almost no empirical evidence exists about the effectiveness of accounting, non-accounting and qualitative information for management control purposes. This paper presents an empirical study among 54 publicly listed companies in The Netherlands. In this study we made an attempt to classify different performance measurement systems as they are being used by corporate controllers to measure the performance of their most important production units’ managers. The classification is based on the degree to which the actual performance measurement system is based on (accounting) measures of output, on quantitative measures or on measures of qualitative aspects of the business unit manager’s performance. Tests indicate that the classification makes a valid and meaningful distinction between the different classes of performance measurement systems. Based on this classification, a study has been conducted to assess the relationship between the use of certain performance

Date: 2001
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