Reducing Strategy Surrogation: The Effects of Flexible Strategic Performance Measurement Systems and Environmental Dynamism

• In Event: 5.03 Behavioral Management Accounting Research

Abstract

Prior research shows that individuals exhibit propensity to surrogate performance measures for their underlying strategy to the extent that they make decisions merely based on the performance measures. Strategy surrogation propensity can result in suboptimal strategic decisions if the existing performance measures are inconsistent with the intended strategy. We investigate whether flexible use of strategic performance measurement systems (SPMS) can overcome strategy surrogation in the context of product innovation wherein strategy surrogation is likely to have detrimental effect on firms’ strategic viability. We also investigate the moderating effects of environmental dynamism and the mediating effect of managers’ strategy engagement on the effectiveness of SPMS flexibility in reducing strategy surrogation. We conduct a 2x 2 experiment, and find that, flexible SPMS significantly lowers participants’ strategy surrogation propensity when the environment state is dynamic. Additional analysis further reveals that managers’ engagement with the strategy significantly reduces strategy surrogation. Overall, our findings suggest that flexible SPMS can be a remedy to reduce strategy surrogation, which is often associated with the use of SPMS, and thus shedding light on the effective use of SPMS to facilitate innovations.

Authors

• Kelly Wang, University of Technology Sydney

• Linda Chang, UNSW Sydney

• Mandy Cheng, UNSW Sydney