Limiting the Effect of Attribution and Construal Errors on Strategy Evaluation Using a Strategic Performance Measurement System
41 Pages Posted: 12 Jan 2012
Date Written: December 1, 2011
Abstract
The multiple performance measures included in strategic performance measurement systems (SPMS), including the balanced scorecard, should be selected to represent a set of causally-linked strategic drivers and outcomes (Ittner and Larcker 2001, 2005; Chenhall 2005; Kaplan and Norton 1996). The pattern of results thus can provide useful information concerning the proper execution of the underlying strategy (i.e., the performance evaluation role) and the strength of the cause-and-effect linkages assumed by the strategy (i.e., the strategy evaluation role). Unfortunately, managers’ tendency to re-examine strategy when divisional performance falls short of target is relatively low in practice (Campbell et al. 2008; Ittner and Larcker 2005). Possible explanations include attribution error (i.e., the tendency to attribute poor financial results to poor subordinate performance rather than to strategic factors) and construal error (i.e. the tendency to focus on specific individual performance metrics instead of the overall pattern of results presented in a complicated SPMS) (Koonce et al. 2011). We experimentally examine two decision aids designed to help strategic business unit managers avoid attribution and construal errors. Results of our first experiment indicate that the decision aids, individually as well as interactively, increase managers’ tendency to re-examine strategy. We find consistent results in a second experiment that examines the effects of the two decision aids (when used together) on evaluators’ judgment under a different pattern of driver and outcome performance, and among a sample of more experienced managers.
Keywords: Strategy evaluation, strategic performance measurement system, attribution error, pattern recognition, mental construal
JEL Classification: M41
Suggested Citation: Suggested Citation