Matthew Hall Department of Accounting and Business Information Systems The University of Melbourne VIC 3010

Transcription

1 An empirical investigation of the relationship between strategic performance measurement systems, role clarity, psychological empowerment and work outcomes by Matthew Hall Department of Accounting and Business Information Systems The University of Melbourne VIC 3010 April 2004 Please do not quote without permission.

2 An empirical investigation of the relationship between strategic performance measurement systems, role clarity, psychological empowerment and work outcomes. ABSTRACT This study examines the effect of strategic performance measurement systems (PMS) on managers role clarity, psychological empowerment, job satisfaction and managerial performance. Data were collected using a survey of 83 strategic business unit managers from Australian manufacturing organisations. Consistent with the need to define the underlying theoretical properties of management accounting practices (Luft and Shields 2003), the study identifies comprehensiveness as an information characteristic of strategic PMS. Results show that strategic PMS is not directly associated with managerial performance. Rather, strategic PMS has an indirect positive association with managerial performance through psychological empowerment and role clarity. Results show that strategic PMS is positively associated with all four dimensions of psychological empowerment (meaning, competence, self-determination and impact), with dimensions of psychological empowerment positively associated with job satisfaction and managerial performance. Further results show that strategic PMS is positively associated with two dimensions of role clarity (goal clarity and process clarity), which, in turn, is positively associated with psychological empowerment, job satisfaction and managerial performance. The results indicate that the comprehensiveness of strategic PMS provides performance information that improves managers psychological empowerment and clarifies managers role expectations, which, in turn, improve managerial performance. Keywords: strategic performance measurement systems, role clarity, psychological empowerment, survey, managerial performance 2

3 INTRODUCTION Management accounting systems have developed a more strategic orientation aimed at providing information to enhance the firm s competitive position (Chenhall 2003; Ittner, Larcker and Randall 2003). Organisations have developed more strategic performance measurement systems (PMS) to provide managers and employees with information about multiple dimensions of the firm s operations (Fullerton and McWatters 2002; Lillis 2002). PMS are evolving to include a more diverse set of performance measures (Malina and Selto 2001; Ittner et al. 2003) and performance measures that are linked to the strategy of the firm and provide information about parts of the value chain (Nanni, Dixon and Vollman 1992; Neely, Gregory and Platts 1995). The move towards more strategic PMS has been popularised in techniques such as the balanced scorecard (Kaplan and Norton 1996), tableau de bord (Epstein and Manzoni 1998) and performance hierarchies (Lynch and Cross 1992). Prior research has focused primarily on the relationship between strategic PMS and organisational outcomes, such as achievement of competitive strategic priorities, organisational performance and share price returns (Chenhall 2003; Ittner et al. 2003). Further research has focused on managers perceptions of the value of information from strategic PMS. This research supports the role of strategic PMS in providing an overall measure of business performance, which managers perceive as important and useful for managing their businesses (Malina and Selto 2001). Other research has focused on the use of multiple performance measures in performance evaluation judgements (Schiff and Hoffman 1996; Lipe and Salterio 2000, 2002; Moers 2004). This research has examined the potential bias associated with weighting different types of performance measures when making judgements about subordinate performance. Overall, prior research demonstrates links between strategic PMS and organisational outcomes, and explores the way that strategic PMS are used by superiors in performance evaluation judgements. Although these studies provide insights into the role and effects of strategic PMS, there is little empirical research examining the effect of strategic PMS on the work behaviour of individuals in the organisation. Studies examining links between management control systems and organisational outcomes assume that such systems affect the behaviour of individuals within the organisation, which then facilitates the achievement of organisational goals. However, as Chenhall (2003) notes, this assumption involves broad leaps in logic and there is no compelling evidence to suggest that these links exist. Similarly, Covaleski, Evans, 3

4 Luft and Shields {, 2003 #537} argue, in the context of budgetary research, that studies at the organisational level of analysis remain somewhat limited because they are based upon assumptions about, rather than a detailed investigation of, individual behaviour. In addition, little is known about the nature of the relationship between strategic PMS and individual behaviour. Shields et al. (2000) note that much management accounting research examines the direct effects of control system components on work performance, however; few studies examine whether control system components have indirect effects on work performance. Researchers have argued that cognitive and motivational mechanisms can help explain the relationship between management control systems and individual behaviour (Ilgen, Fisher and Taylor 1979; Bonner and Sprinkle 2002). However, it is unclear whether the effect of strategic PMS on work performance (if any) is direct, or indirect through cognitive and motivational mechanisms. This is important because there can be theoretical differences between direct- and indirect-effects models that can have practical implications (Shields et al. 2000). Based on this discussion, the primary purpose of this study is to investigate the nature of the relationship between strategic PMS and work performance. Although some research has attempted to define the theoretical properties of strategic PMS (Malmi 2001; Chenhall 2003; Ittner et al. 2003), there is a lack of research that investigates empirically the information characteristics of strategic PMS. Luft and Shields (2003) argue that it is essential to define the underlying theoretical properties of variables used to describe management accounting practices. However, little is known about the attributes of strategic PMS and what distinguishes them from other PMS. As such, the study also investigates empirically the information characteristics of strategic PMS. The study uses data collected from a survey of strategic business unit (SBU) managers to test hypothesised relationships between strategic PMS, role clarity, psychological empowerment, job satisfaction and managerial performance. Results show that strategic PMS is not directly associated with managerial performance. Rather, strategic PMS has an indirect positive association with managerial performance through psychological empowerment and role clarity. Results show that strategic PMS is positively associated with all four dimensions of psychological empowerment (meaning, competence, self-determination and impact), with dimensions of psychological empowerment positively associated with job satisfaction and managerial performance. Further results show that strategic PMS is positively associated with two dimensions of role clarity (goal clarity and process clarity), which, in turn, is 4

5 positively associated with dimensions of psychological empowerment, job satisfaction and managerial performance. As such, the study helps to explain why strategic PMS affect organisational outcomes by showing that strategic PMS has positive effects on the behaviour of individuals within the organisation. The study also indicates that cognitive and motivational mechanisms help to explain the effect of strategic PMS on work performance. This contributes to prior research which has examined the direct- and indirect-effects of management control systems on work performance (Shields et al. 2000). The study also extends the limited body of prior research that has examined the relationship between management control system attributes and psychological empowerment (Spreitzer 1995; 1996; Smith and Langfield-Smith 2003) and role clarity (Chenhall and Brownell 1988). Furthermore, the study identifies comprehensiveness as an information characteristic of strategic PMS, which furthers our conceptual understanding of the nature and specific information characteristics of strategic PMS. The study also develops and empirically validates an instrument to measure the strategic PMS construct. The remainder of the paper contains four sections: the next section reviews the related literature and develops the theoretical model, including presentation of the hypotheses. The research method, including sample selection and variable measurement, is then presented. This is followed by presentation of the results. The final section discusses the results and concludes the paper. THEORY DEVELOPMENT AND HYPOTHESES FORMULATION Role and motivational theories are used to examine the nature of the relationship between strategic PMS and individual behaviour. The hypothesised relationships are illustrated in Figure 1. In this section the literature that examines the relationships between these variables is reviewed and the hypotheses are presented. <insert Figure 1 here> Strategic performance measurement systems Luft and Shields (2003) argued that it is essential to define the underlying theoretical properties of variables used to describe management accounting practices. The literature has identified several important features of strategic PMS. These include a comprehensive and diverse set of performance measures, the integration of measures with strategy and links to 5

6 valued organisational outcomes, and the coverage of performance measures related to different parts of the organisation (Neely et al. 1995; Malina and Selto 2001; Malmi 2001; Ittner et al. 2003). Drawing on these descriptions of strategic PMS, it is argued that an information characteristic of strategic PMS is comprehensiveness; defined here as the extent to which a strategic PMS provides managers with comprehensive performance information. It is argued that the comprehensiveness of strategic PMS derives from the provision of performance measures that describe the important parts of the SBU s operations and the integration of measures with strategy and the value chain. Themes identified in the performance measurement literature include a comprehensive set of measures, coherence, balance, use of financial and non-financial measures, and the coverage of measures (for example, see Neely et al. 1995; Kaplan and Norton 1996; Malina and Selto 2001; Lillis 2002). Malina and Selto (2001) found that a balanced scorecard was perceived as comprehensive when it provided an overall measure of business performance. Similarly, a manager interviewed as part of Malina and Selto s (2001) study indicated that the BSC is trying to give us a broader business set of measures of success than more traditional financial or market share. It wraps a set of things together that makes sense for managing the business (Malina and Selto 2001, p.70). Ittner, Larcker and Randall (2003) also argued that a broad set of measures, or measurement diversity, is an attribute of strategic PMS. Measurement diversity relates to supplementing traditional financial measures with a diverse mix of non-financial measures that are expected to capture key strategic performance dimensions that are not accurately reflected in short-term accounting measures. A common theme is the use of a broad set of measures that cover different parts of the organisation s operations. The integration of measures with strategy and providing information about parts of the value chain is also an important part of strategic PMS. Nanni et al. (1992) argued that PMS that integrate actions across functional boundaries, and focus on strategic results, are critical in supporting the new manufacturing and competitive environments facing organisations. In addition, the integration of measures with the strategy and objectives of the organisation provides performance information about progress on important dimensions of performance (Nanni et al. 1992; Neely et al. 1995; Kaplan and Norton 1996; Malina and Selto 6

7 2001; Malmi 2001). Chenhall (2003) found that integration was an important attribute of strategic PMS. In summary, it is argued that an information characteristic of strategic PMS is comprehensiveness; that is, the extent to which the PMS provides managers with comprehensive performance information. Comprehensiveness derives from the provision of performance measures that describe the important parts of the SBU s operations and from the integration of measures with strategy and across the value chain. It is the comprehensive nature of strategic PMS that is expected to influence the behaviour of individuals in the organisation. Strategic PMS and managerial performance Proponents of BSC-type strategic PMS have argued that these systems can enhance performance (Kaplan and Norton 1996). This is achieved by focusing effort on achieving goals, concentrating attention on critical processes, highlighting tradeoffs to ensure optimal decisions, and helping managers learn about strategies and drivers of performance (Kaplan and Norton 1996; Epstein and Manzoni 1998; Atkinson and Epstein 2000). Psychological theories suggest that managers perform better when provided with goals and comprehensive feedback regarding their performance. In particular, managers are more motivated and perform better when provided with specific goals and specific feedback regarding their efforts and performance (Ilgen et al. 1979; Locke, Shaw, Saari and Latham 1981). Strategic PMS can provide comprehensive feedback on a range of performance measures to improve performance. Strategic PMS also provide relevant information for decision making. Linking performance measures to strategy can result in actionable measures that managers can focus on to improve performance. Integrating measures across the value chain can help managers understand cross-functional relationships that may lead to improved problem solving and decision making (Banker, Chang and Pizzini 2002). In this way, strategic PMS guide decision making and help to evaluate past decisions (Malina and Selto 2001). Kren (1992) argued that job-relevant information can improve performance because it provides managers with more accurate predictions of environmental states, which in turn allows a better understanding of decision alternatives and the most effective course of action. Kren (1992) found a positive association between job-relevant information and managerial performance. This suggests that 7

8 the comprehensive performance information from strategic PMS will provide more relevant and specific information for decision making, resulting in improved managerial performance. This leads to H1: H1: There is a positive association between strategic PMS and managerial performance Psychological empowerment Psychological empowerment is a cognitive construct and refers to an individual s intrinsic task motivation (Thomas and Velthouse 1990). Psychological empowerment has been defined theoretically and empirically as a set of four cognitions; meaning, competence, self-determination, and impact (Thomas and Velthouse 1990; Spreitzer 1995). Meaning refers to the value placed on work judged in relation to an individual s own ideals or standards. It relates to an individual s intrinsic caring about a task (Thomas and Velthouse 1990). Competence refers to an individual s belief in his/her capacity to perform a job with skill (Thomas and Velthouse 1990). Self-determination refers to an individual s perceptions of the degree of choice they have in initiating and performing work behaviours (Thomas and Velthouse 1990; Spreitzer 1995). Impact refers to the extent to which an individual believes they can influence outcomes at work. It relates to the extent to which individuals can produce intended effects in their work role (Thomas and Velthouse 1990). Strategic PMS and psychological empowerment Collins (1982) argued that management accounting systems can be used to motivate individuals to perform. Specifically, performance information can serve a motivational function by providing feedback about task behaviour (Ilgen et al. 1979; Collins 1982; Luckett and Eggleton 1991). Feedback theories suggest that performance information can improve motivation by providing information about effort-performance expectancies (Ilgen et al. 1979). Strategic PMS proponents argue that these systems can communicate information about strategic priorities and the direction of the firm (Kaplan and Norton 1996). The comprehensiveness of strategic PMS is critical in providing individuals with information about the direction and performance of the organisation, which should increase psychological empowerment. Strategic PMS are expected to increase managers perceptions of each dimension of psychological empowerment. Strategic PMS can make individuals jobs more meaningful as 8

9 comprehensive information about strategies and performance can help people make sense of where the organisation is headed and how their role fits within the broader scope of the organisation. Conger and Kanungo (1988) note that performance information strengthens individuals perceptions of meaning and purpose. Gist and Mitchell (1992) argued that competence perceptions are strengthened by providing information that increases individuals understanding of task attributes, complexity and the task environment. The comprehensiveness of strategic PMS can improve managers understanding of their tasks and task environment. Performance information is fundamental for reinforcing a sense of competence (Ilgen et al. 1979; Lawler 1992; Spreitzer 1995). Thomas et al. (1993) found that executives who use relatively more information tend to feel as though they have more control over issues affecting the organisation, which may reinforce their sense of competence. Strategic PMS can help individuals to take the initiative and can improve their ability to initiate and complete tasks. Individuals require information about where the organisation is headed in order to feel capable of taking the initiative (Kanter 1989). Similarly, employees must have information about performance to direct and manage their own performance (Lawler 1992). Strategic PMS can improve managers understanding of where the organisation is headed, providing managers with the confidence to initiate and complete tasks. Individuals need performance information in order to make and influence decisions that are consistent with the organisation s priorities (Lawler 1992). Without knowledge of results, individuals are unlikely to exert influence in their work area (Kraimer, Seibert and Liden 1999). Liden et al. (2000) argued that performance feedback increases impact by providing information about the quality and effectiveness of an individual s performance. Strategic PMS can strengthen managers knowledge of strategies and organisational priorities and therefore improve their ability to influence and act in ways that are consistent with those priorities. Without comprehensive performance information, managers are unlikely to fully understand the operations of their work unit, or the wider organisation, and therefore feel unable to make an impact in their work area. Prior research shows a positive association between performance information and overall psychological empowerment. Spreitzer (1995; 1996) found that access to performance 9

10 information was positively associated with psychological empowerment. Randolph (1995) found that providing strategic and performance information helped to develop empowered employees. In summary, strategic PMS are expected to positively influence managers perceptions of psychological empowerment, which leads to H2: H2: There is a positive association between strategic PMS and the four dimensions of psychological empowerment. Psychological empowerment and managerial performance Empowered individuals should perform better than those individuals who are less empowered (Liden et al. 2000). Thomas and Velthouse (1990) argued that perceptions of empowerment are directly linked to a range of behavioural factors, including activity, concentration, initiative, resilience and flexibility, which, in turn, should improve performance. Spreitzer (1995) argued that psychological empowerment has great potential to contribute to managerial performance because the work processes of managers cannot be completely structured by rules and procedures. Furthermore, higher levels of internal motivation are related to greater work effectiveness (Hackman and Oldham 1980). Empowerment research has examined the relationship between overall psychological empowerment and work performance, with results showing that higher levels of psychological empowerment improve work performance (Spreitzer 1995; Koberg, Boss, Senjem and Goodman 1999). However, recent research has examined the relationships between the specific dimensions of psychological empowerment and work performance. Spreitzer et al. (1997) found that, of the four dimensions of psychological empowerment, only competence and impact were positively associated with work effectiveness. Similarly, Liden et al. (2000) found that only competence and impact were positively associated with job performance. Therefore, although prior research indicates that meaning and self-determination are positively correlated with work performance, it does not support a direct association of meaning and self-determination to work performance. As such, only competence and impact are expected to influence managerial performance, which leads to H3. H3: There is a positive association between the competence and impact dimensions of psychological empowerment and managerial performance. Psychological empowerment and job satisfaction 10

11 Job satisfaction was one of the earliest anticipated outcomes of empowerment (Spreitzer et al. 1997). Meaning and self-determination are expected to improve job satisfaction. A sense of meaning is considered necessary for individuals to feel satisfied at work. Having a job that allows fulfilment of ones desired work values are likely to increase job satisfaction (Locke 1976). Low levels of meaning have been linked to feelings of apathy and lower work satisfaction (Thomas and Velthouse 1990). Liden et al. (2000) argued that individuals who feel their jobs are significant and worthwhile have higher levels of satisfaction compared to those who feel their jobs have little value. Empirical research has found a positive association between meaning and work satisfaction (Spreitzer et al. 1997; Liden et al. 2000). Self-determination positively influences job satisfaction due to its effects on intrinsic motivation. Individuals who have autonomy in determining their actions and behaviours find work more interesting and rewarding, thus creating feelings of satisfaction with their job. Higher levels of autonomy increases the amount of intrinsic rewards from work (Thomas and Velthouse 1990). Self-determination improves job satisfaction as accomplishments can be attributed more to the individual than to other persons (Liden et al. 2000). Empirical results show a positive relationship between self-determination and job satisfaction (Spreitzer et al. 1997; Smith and Langfield-Smith 2003). Although prior research indicates that competence and impact are positively correlated with job satisfaction, it does not support a direct association of competence and impact to work performance (Spreitzer et al. 1997). As such, only meaning and self-determination are expected to influence job satisfaction. Based on this discussion, the following hypothesis is proposed: H4: There is a positive association between the meaning and self-determination dimensions of psychological empowerment and job satisfaction. Job satisfaction and managerial performance Prior research indicates a modest but positive correlation between job satisfaction and individual performance (Vroom 1964; Organ 1977; Petty, McGee and Cavender 1984; Hochwater, Perrewe, Ferris and Brymer 1999). However, there is still uncertainty regarding the causal ordering of the job satisfaction-performance relationship. Some researchers argue that satisfaction precedes performance (Schwab and Cummings 1970), while others argue that performance precedes satisfaction (Lawler and Porter 1967). Recent theoretical research argues that happy and satisfied workers are likely to put forth more effort, perform more 11

12 extra-role behaviours, obtain more social support and valued positions in the organisation, and be more successful in interpersonal relationships, which, collectively, should improve work effectiveness (Staw, Sutton and Pelled 1994; Wright and Staw 1999). Thus, managers who are more satisfied with their jobs are likely to put forth more effort and be more interested in their work, leading to improved performance. This leads to H5: H5: There is a positive association between job satisfaction and managerial performance. Role clarity Role clarity refers to an individual s perceptions about the expectations and behaviours associated with his/her role (Kahn, Wolfe, Quinn, Snoek and Rosenthal 1964). 1 King and King (1990) describe four forms of role clarity, or conversely, role ambiguity: (1) ambiguity regarding what is required or uncertainty over the scope of responsibilities, (2) ambiguity regarding how responsibilities are to be met or uncertainty about the role behaviours necessary to fulfil responsibilities, (3) ambiguity regarding role senders or uncertainty about whose expectations for role behaviours must be met, and (4) ambiguity regarding the consequences of role behaviour or uncertainty about the effects of actions on well being, the role set and the organisation. It is expected that strategic PMS will affect managers perceptions regarding the scope of their responsibilities and their required role behaviours. Therefore, this study examines the clarity of expectations about the goals and objectives of a work role (termed goal clarity) and clarity of the behaviours necessary to fulfil a work role (termed process clarity). Strategic PMS and role clarity Management accounting systems can be used to prescribe normative role behaviour by informing individuals about what is expected of them in their role (Collins 1982). Specifically, performance information can serve a directional function by making specific the goals and appropriate behaviours associated with a work role (Ilgen et al. 1979). In particular, strategic PMS can be used to send signals about the preferences, values and types of opportunities that individuals should exploit. This is achieved by focusing systematically on certain types of information and ignoring others. Each set of performance measures 1 Kahn et al. (1964) use the term role ambiguity, which refers to uncertainty regarding parts of an individual s role. In this study the term role clarity is used. However, this is conceptually no different from role ambiguity (Sawyer 1992). Role clarity is expressed as the extent of certainty, rather than ambiguity, of role expectations. 12

13 communicates different priorities and allows employees to infer the strategic direction of the organisation (Simons 2000). This enables the organisation to bring strategies to life and communicate goals and business direction (Simons 2000). Performance information is a key antecedent of role clarity. Lawler (1992) argued that information about the organisation s mission and performance is necessary for individuals to know how to behave. Similarly, access to information about the organisation allows individuals to see the big picture and develop alternative frames of reference for understanding their roles within the organisation (Bowen and Lawler 1992). Strategic PMS can increase role clarity by (1) clarifying role expectations and (2) clarifying the appropriate behaviours for fulfilling those expectations. Strategic PMS can clarify role expectations by providing comprehensive information about the organisation s strategies and operations. This information should improve manager s understanding of the goals and objectives of their work role. Strategic PMS can clarify appropriate behaviours by providing comprehensive performance information that improves managers understanding of the drivers of performance, the effects of their actions on parts of the value chain, and links between different parts of the organisation s operations. Banker et al. (2002) argued that the integration of measures across the value chain can help individuals to understand cross-functional relationships. Similarly, Malina and Selto (2001) found that the balanced scorecard was important for managing the business when performance information was comprehensive and integrated. As such, the information provided by strategic PMS is expected to improve managers understanding of their work roles and thus increase role clarity. This leads to H6. H6: There is a positive association between strategic PMS and role clarity. Role clarity and psychological empowerment Role clarity is proposed as an antecedent of psychological empowerment because unless individuals have a clear sense of their responsibilities, and how to achieve them, they are unlikely to believe that they have the necessary skills and abilities to perform tasks adequately (i.e., feel empowered). Spreitzer (1996) argued that creating clear goals, tasks and lines of responsibility improves empowerment in the workplace. Role clarity increases intrinsic motivation to perform as it increases the expectation that effort will lead to 13

14 performance and that performance will lead to outcomes (Jackson and Schuler 1985; Tubre and Collins 2000). Role clarity is expected to improve each dimension of psychological empowerment. Spreitzer (1996) argued that it is only when individuals understand their roles that those roles can take on personal meaning. Individuals with an understanding of their work goals and how to achieve them can judge the value of their work and therefore experience higher perceptions of meaning. Clear lines of responsibility and authority are related to perceptions of confidence (Conger and Kanungo 1988). Similarly, clear task requirements and low uncertainty are also related to feelings of competence (Gist and Mitchell 1992). Individuals with clear work goals and an understanding of how to achieve those goals are likely to feel that they can perform their job with skill and thus feel more competent. Individuals who are uncertain of their role expectations are likely to hesitate or not take the initiative due to feelings of uncertainty (Spreitzer et al. 1997). In contrast, individuals are likely to feel that they have control over their work environment under high levels of role clarity. This creates feelings of being able to determine and take actions to complete tasks, and thus increase self-determination. A lack of role clarity is likely to make individuals feel helpless and thus reduce their perceptions regarding the impact they have in their work area (Spreitzer et al. 1997). In contrast, individuals who understand their work roles are more likely to take actions and decisions that influence results in their work area (Sawyer 1992). Prior research shows that higher levels of role ambiguity are related to lower levels of psychological empowerment (Spreitzer 1996; Smith and Langfield-Smith 2003). This leads to H7: H7: There is a positive association between role clarity and the four dimensions of psychological empowerment. Role clarity and job satisfaction Kahn et al. (1964) argued that uncertainty about the expectations of a work role can lead to tension, anxiety, fear, anger, hostility, futility and apathy. These feelings decrease an individual s satisfaction with their work role. Individuals are more satisfied with their jobs when they are certain about their role expectations and the most appropriate way to perform their work tasks. Prior research indicates that role ambiguity decreases job satisfaction (Kahn et al. 1964; Jackson and Schuler 1985; Sawyer 1992; Abramis 1994; Breaugh and Colihan 1994). This discussion results in H8: 14

15 H8: There is a positive association between role clarity and job satisfaction. Role clarity and managerial performance Cognitive and motivational theories suggest that role clarity will improve managerial performance. From a cognitive perspective, individuals require sufficient information to perform tasks effectively. A lack of information regarding the goals of the job and the most effective job behaviours can result in effort that is inefficient, misdirected or insufficient for the task(s), and thus reduce job performance (Jackson and Schuler 1985; Tubre and Collins 2000). From a motivational perspective, individuals require sufficient incentive to perform tasks effectively. Role clarity strengthens the expectancy that effort will result in performance, and therefore is expected to improve motivation, and consequently job performance (Jackson and Schuler 1985; Tubre and Collins 2000). Empirical results indicate that role ambiguity decreases work performance (Jackson and Schuler 1985; Abramis 1994; Tubre and Collins 2000). This leads to H9: H9: There is a positive association between role clarity and managerial performance. The next section describes the research method. RESEARCH METHOD Sample and data collection Data were collected by a questionnaire administered to 83 strategic business unit (SBU) managers within large Australian manufacturing organisations. The SBUs were independent companies or divisions of larger companies. Large manufacturing organisations were chosen as examination of the strategic PMS construct requires that individuals have access to relatively sophisticated PMS. Larger organisations are more likely to have developed sophisticated PMS due to a greater availability of resources and a greater need for more comprehensive systems (Chenhall 2003). In addition, the literature surrounding the development of strategic PMS relates, primarily, to a manufacturing environment (Lynch and Cross 1992; Nanni et al. 1992; Neely et al. 1995). A list of senior managers of the largest Australian manufacturing firms was obtained from a commercial mailing list provider. From this list, 400 managers were selected, at random, to form the sampling frame for the study. Prior to distributing the questionnaire, each manager 15

16 was contacted by telephone to ensure that the manager was still employed by the firm and that the manager s name and address details were accurate. Thirty-one managers could not be contacted because they no longer worked for their firm, the phone number was disconnected or did not answer, or the firm was no longer in operation. This resulted in a revised sampling frame for the study of 369 managers. Managers were sent a questionnaire package by post, fax or . The explanatory letter indicated that the study was voluntary and that responses were anonymous and would be treated with strict confidence. A recent practitioner article on strategic PMS was included as a way of thanking the participant for his/her involvement in the study. The inclusion of a token incentive is recommended by Dillman (2000) and has been used successfully in prior management accounting research (Davila 2000). A thankyou/reminder postcard was sent to participants approximately two weeks after the initial distribution of the questionnaire. Finally, a follow-up phone call was made to respondents to encourage completion of the questionnaire approximately two weeks after the reminder postcard. If the manager had misplaced the original questionnaire, a replacement questionnaire was sent. Responses Of the 369 questionnaires sent to participants, 83 were received, which provides a response rate of 22.5%. The response rate compares favourably with recent accounting (Moores and Yuen 2001; Baines and Langfield-Smith 2003) and non-accounting (Samson and Terziovski 1999; Terziovski and Sohal 2000; Gordon and Sohal 2001) surveys of business unit managers in Australian manufacturing firms. Non-response bias was assessed by a comparison of variable scores between the first 20% and last 20% of respondents. There were no significant differences on any of the variables, which provides no evidence of non-response bias. The follow-up phone calls were also used to assess non-response bias. Discussions with approximately 40 non-respondents revealed that the most common reason for not completing the questionnaire was that the manager was too busy. 2 Many managers indicated that they received too many surveys to have time to complete them all 3, or that it was company policy not to respond to voluntary surveys. In addition, some managers were away overseas or interstate for an extended period and thus 2 This is not unexpected as the sample consists of very senior managers. 3 As the manager was typically the head of the organisational unit, they were usually the first point of contact for surveys that require responses from the organisation s point of view, thus increasing the number of surveys that they receive. Several managers indicated that they received at least five surveys per week. 16

17 were unavailable to complete the questionnaire. These reasons for not responding to the survey are very similar to those reported in other studies of senior managers (for example, (Baines and Langfield-Smith 2003; Chenhall 2003; Subramaniam and Mia 2003). Demographic information was collected from respondents regarding tenure in current position, tenure in company, age, gender, business unit size (number of employees), job title, and main manufacturing industry. The average age of respondents was years with an average length of employment in their current position of 5.14 years and their company for years. Average firm size was employees (see Table 1). Eighty-two respondents were male and one was female. Table 2 reports the job title, manufacturing industry classification, and size of respondents firms. Survey design and variable measurement The questionnaire consisted of a series of multi-item constructs to measure each of the variables. Established instruments were used to measure each variable, except for the strategic PMS construct. Given the novelty of this instrument, the questionnaire was subject to extensive testing prior to administration. During the development of the questionnaire it was regularly reviewed by three senior management accounting academics. This resulted in a series of adjustments and refinements to the wording of several items, and to the layout and presentation of the questionnaire. The questionnaire was also pilot tested using four senior managers, who were asked to complete the questionnaire and discuss over the telephone any problems or concerns. This resulted in some minor changes to the wording of some items. Discussion of the instruments used to measure each variable follows, with the wording of the items used in the questionnaire provided in the Appendix. Descriptive statistics for each variable are provided in Table 3. Strategic performance measurement systems Prior research relating to the types of performance measures in PMS has used instruments that ask respondents to indicate the extent to which they use or find helpful a series of specific performance measures (for example, Hoque and James 2000). A limitation of this type of instrument is that it assumes that the performance measures contained in the instrument are representative of the specific types of performance measures used by the firms in the sample. Firms may use similar financial performance measures; however, non-financial and/or strategic measures are likely to be unique to each firm (Lipe and Salterio 2000). As such, five 17

18 items were developed to measure the extent to which the PMS provided a variety of performance information about the important parts of the SBU s operations. To measure the extent of integration of measures with strategy and across the value chain, four items were taken from Chenhall (2003). These items describe how the PMS provides links to the strategies and objectives of the business unit and links to the activities of other business units. A second measure of strategic PMS was developed to assess the validity of the multi-item measure. A forced-choice response format was used to ensure it was different from the multi-item Likert-type measure, which is consistent with the principle of using maximally-dissimilar forms of ratings (Campbell and Fiske 1959; Murphy and Davidshofer 1998). The second measure provided respondents with two descriptions of their PMS. One description was designed to capture a comprehensive PMS, the other description a partial or less comprehensive PMS. Respondents were asked to indicate which of the alternative descriptions better represented their PMS. The comprehensive description was coded one (1) and the partial description coded zero (0). The multi-item strategic PMS scale was subject to an exploratory factor analysis. The results of a principal components analysis with orthogonal rotation produced one factor with an eigenvalue greater than one. As shown in Table 4, all factor loadings are above The factor analysis indicates that the nine items are representative of a single strategic PMS construct. The Cronbach alpha for the strategic PMS scale is , which demonstrates sufficient internal reliability (Nunally 1978). As a test of convergent validity, the scores on the multi-item strategic PMS scale 4 were correlated with the scores on the forced-choice strategic PMS scale. The point-biserial correlation between the multi-item strategic PMS scale and forced-choice strategic PMS scale is 0.66 (p<0.001), which provides support for the convergent validity of the multi-item strategic PMS scale. In addition, the results of an independent samples t-test revealed that the mean score on the multi-item strategic PMS scale was significantly higher for those respondents who indicated a comprehensive PMS (µ=5.507) compared to those who indicated a partial PMS (µ=3.827) (t=7.867, p<0.001). This supports the ability of the multi-item strategic PMS scale to distinguish between more and less comprehensive PMS. The ability to assess the reliability of the multi-item scale led to its use in the hypotheses tests. 4 The overall score for each respondent on the multi-item strategic PMS scale was calculated as an average of the nine items. 18

19 Psychological empowerment Spreitzer (1995) developed a 12-item instrument to measure the four dimensions of psychological empowerment: meaning, self-determination, competence and impact. The instrument asks respondents to indicate the extent to which a variety of factors related to each of the dimensions is evident in their jobs. Results from a confirmatory factor analysis supported the internal reliability and convergent and discriminant validity of the instrument (Spreitzer 1995). Spreitzer s (1995) measure of psychological empowerment has been used extensively in prior research (Fulford and Enz 1995; Spreitzer et al. 1997; Corsum and Enz 1999; Koberg et al. 1999; Liden et al. 2000; Siegall and Gardner 2000). Role clarity Ilgen and Hollenbeck (1991) argued that research should explicitly define the aspects of role clarity under examination. This study examines the clarity of expectations about the goals and objectives of a work role and clarity of the behaviours necessary to fulfil a work role. Sawyer s (1992) measures of goal clarity and process clarity address the theoretical definition of role clarity used in this study. Sawyer (1992, p.134) defined goal clarity as the extent to which the outcome goals and objectives of the job are clearly stated and well defined. Process clarity was defined as the extent to which the individual is certain about how to perform his or her job. Sawyer (1992) provided support for the discriminant, convergent, and construct validity of the goal clarity and process clarity scales. A subsequent study by Beard (1999) provided further support for the instrument. As such, Sawyer s (1992) measures of goal clarity and process clarity are used in this study. Job satisfaction Job satisfaction was measured using a six-item instrument adapted from Rusbult and Farrell (Rusbult and Farrell 1983). The instrument asked respondents to indicate the extent to which they agree or disagree with six statements about their jobs. This scale has been used in prior accounting studies (Ketchand and Strawser 1998; Smith and Langfield-Smith 2003) and has demonstrated satisfactory internal reliability. This instrument was chosen over the Minnesota Satisfaction Questionnaire due to its shorter length. It was considered desirable to limit the length of the questionnaire as much as possible in an attempt to increase the response rate to the survey. 19

20 Managerial performance Managerial performance was measured using the nine-item scale developed by Mahoney et al. (1965) This instrument asks managers to rate their performance on eight dimensions of managerial performance; planning, investigating, coordinating, evaluating, supervising, staffing, negotiating and representing, and an overall assessment of performance. This instrument remains the dominant method of obtaining self-rated managerial performance data in management accounting research (Brownell 1985; Kren 1992; Gul and Chia 1994; Chong 1996; Chong and Chong 2002; Wentzel 2002). Prior research reports Cronbach alphas of (Wentzel 2002) and 0.93 (Chalos and Poon 2000), supporting the internal reliability of the scale. Data issues A small number of responses contained missing data. As such, the data was replaced using the expectation-maximisation (EM) method in SPSS. 5 The EM approach is an iterative two-stage process where the E-stage makes the best estimates of the missing data and the M-stage makes parameter estimates assuming the missing data are replaced. This occurs in an iterative process until the changes in the estimated parameters are negligible and the missing values are replaced (Little and Rubin 1987; Hair et al. 1998). This resulted in a complete data set of 83 responses. The maximum and minimum values for each item were within the theoretical range for each item. Multivariate outliers were assessed using the Mahalanobis D 2 measure, which revealed the presence of one outlier. Visual inspection of the outlier did not reveal any patterns to suggest that the case is unrepresentative so the case was retained (Hair et al. 1998). Mardia s (1970) test of multivariate kurtosis revealed that the data are multivariate non-normal (t = , p < 0.001). As the data are multivariate non-normal, and the sample size is well below the recommended minimum sample size of 200 for structural equation modelling (SEM) (Kline 1998), Partial Least Squares (PLS) was chosen as the analytical technique to test the hypotheses. PLS is described in the next section. Partial Least Squares (PLS) 5 Little s MCAR test revealed that the missing data was missing completely at random (MCAR) (chi-square=4.424, degrees of freedom=516, p>0.10). As the data is MCAR, any imputation method can be used ((Hair, Anderson, Tatham and Black 1998) 20

21 The latent variable modelling technique of PLS is increasingly being used to test path models in accounting research (Ittner, Larcker and Rajan 1997; Vandenbosch 1999; Anderson, Hesford and Young 2002; Chenhall 2003). PLS is a second generation multivariate technique, which incorporates multiple dependent constructs, explicitly recognises measurement error, and explicitly integrates theory with empirical data (Fornell 1982). PLS makes no distributional assumptions about the data and is particularly suited to studies with small sample sizes (Wold 1985). PLS comprises a measurement model and a structural model. The measurement model specifies relationships between observed items and latent variables. The structural model specifies relationships between latent constructs. In PLS the measurement and structural models are estimated simultaneously (Barclay, Thompson and Higgins 1995). However, the PLS model is typically interpreted in two stages. First, the reliability and validity of the measurement model is assessed. Second, the structural model is assessed (Barclay et al. 1995). This approach is recommended to maximise interpretability where research instruments are less developed and/or theory is relatively tentative (Hair et al. 1998). It also ensures that the researcher has reliable and valid measures of constructs before assessing the nature of the relationships between constructs (Hulland 1999). As this study is using less developed research instruments, the two-step approach is adopted. The objective of PLS is to maximise variance explained, rather than fit, therefore no overall goodness-of-fit measures are available. 6 As such, prediction-orientated measures, such as R 2, are used to evaluate PLS models, with the interpretation of R 2 being identical to that used in regression (Chin 1998). As PLS makes no distributional assumptions, bootstrapping (100 samples) is used to test the statistical significance of each path coefficient (Chin 1998). The next section reports the results of the study. RESULTS Measurement model The results for the PLS measurement model were obtained from PLS Graph Version 3.0. The PLS measurement model provides statistics (individual item loadings, average variance 6 Hulland (1999) notes that some PLS algorithms report goodness-of-fit statistics such as the Bentler-Bonnet normed fit index. These statistics are based on the assumption that the estimated model parameters are chosen to minimise the difference between the sample covariances and those predicted by the theoretical model. As PLS does not estimate model parameters in this way, this assumption is not warranted for PLS. Therefore, Hulland (1999) argues that such goodness-of-fit measures are meaningless in evaluating PLS models. 21